An NDA contract, or non-disclosure agreement, is a binding contract in which one or both parties promise to keep specified information confidential and not use it outside the relationship that justified sharing it. The agreements show up in hiring, investor pitches, mergers, freelance work, and joint ventures. They hold up in court when they are narrowly written, properly executed, and compliant with the federal rules that limit what confidentiality clauses can cover. They fail when any of those pieces is missing.
What an NDA Actually Does
Every NDA identifies a disclosing party and a receiving party, defines what information is protected, sets how long the obligation lasts, and restricts how the recipient can use what they learn. Those four pieces do most of the work.
Party names matter more than people expect. If the contract names the wrong entity or misspells a registered business name, enforcement becomes an uphill fight. Use full legal names and registered addresses, and when a business is a party, name the entity rather than the individual signing on its behalf.
The definition of confidential information is the heart of the agreement. Courts expect this section to be specific enough that the receiving party knows exactly what they are obligated to protect. Catch-all language like “any and all information shared” is vulnerable to challenge. Good definitions describe categories — financial records, source code, marketing plans, customer data — and may require that written disclosures be marked “Confidential” at the time of sharing.
Duration should match the type of information. One to three years from the date of disclosure is common for general business information. Trade secrets are frequently protected for as long as the information qualifies as a trade secret under applicable law, which can be indefinite. Many well-drafted NDAs split these into two tracks: a fixed term for ordinary confidential information and an open-ended term for trade secrets.
The non-use clause stops the recipient from exploiting the information for their own benefit or any purpose outside the relationship. Most agreements also require the recipient to apply the same level of care they use with their own sensitive data, and to return or destroy all copies when the relationship ends.
Unilateral or Mutual
A unilateral NDA protects only one side’s information. That is the typical setup when a company hires an employee or brings on a contractor who will access proprietary systems. The employee signs; the company takes on no reciprocal obligation.
A mutual NDA binds both parties. It fits joint ventures, merger talks, and technology partnerships, where each side is exposing sensitive material. Either party can sue the other for a breach, which tends to keep both sides honest.
Standard Exclusions You Need to Include
No NDA covers everything, and leaving out the standard carve-outs can make the whole agreement harder to enforce. The usual exclusions are:
- Publicly available information, provided it became public through no fault of the receiving party.
- Information the receiving party already possessed before signing and can prove they had.
- Information the receiving party develops independently without relying on the disclosed material.
- Information a third party who owes no confidentiality obligation shares with the receiving party.
A court order or subpoena is a separate situation. Federal Rule of Civil Procedure 45 allows courts to subpoena documents and testimony, and it also gives the affected party the right to move to quash or modify a subpoena that would require disclosing trade secrets or confidential commercial information.1Legal Information Institute. Federal Rules of Civil Procedure Rule 45 – Subpoena Most NDAs require the recipient to notify the disclosing party before complying with a compelled disclosure, giving the discloser a chance to seek a protective order.
Federal Rules That Override Your NDA
Several federal statutes limit what an NDA can prohibit. Ignoring any of them creates real exposure, and the DTSA notice in particular costs companies the fuller remedies they would otherwise have.
DTSA Whistleblower Notice
The Defend Trade Secrets Act gives employers a federal cause of action for trade secret theft, but there is a condition. Under 18 U.S.C. § 1833(b), any contract with an employee that governs trade secrets or confidential information must include a notice informing the employee of their immunity for disclosing trade secrets to a government official or attorney for the purpose of reporting or investigating a suspected legal violation.2Office of the Law Revision Counsel. 18 U.S. Code 1833 – Exceptions to Prohibitions An employer can satisfy this by cross-referencing a separate policy document that explains the reporting protections.
Skip the notice and the employer loses the right to recover exemplary damages (up to double the base award) and attorney fees under the DTSA in any action against an employee who was not notified.2Office of the Law Revision Counsel. 18 U.S. Code 1833 – Exceptions to Prohibitions The employer can still sue for misappropriation, but the available remedies shrink.3Office of the Law Revision Counsel. 18 U.S. Code 1836 – Civil Proceedings The requirement applies to any NDA entered into or updated after the DTSA’s 2016 enactment.
Speak Out Act
Signed into law in December 2022, the Speak Out Act makes any pre-dispute NDA or non-disparagement clause unenforceable when it covers sexual assault or sexual harassment claims alleging a violation of federal, state, or tribal law. The critical word is “pre-dispute.” An NDA signed before any allegation arises cannot silence the person making the claim. NDAs negotiated as part of a settlement after a dispute has already surfaced are not affected. The law preserves an employer’s ability to protect genuine trade secrets and proprietary information, and states remain free to impose stronger protections.4Office of the Law Revision Counsel. 42 USC 19403 – Limitation on Judicial Enforceability of Nondisclosure and Nondisparagement Contract Clauses
SEC Rule 21F-17
Commission Rule 21F-17(a) prohibits anyone from using an NDA or confidentiality agreement to impede a person from communicating directly with SEC staff about a possible securities law violation. It covers employees, customers, investors, and independent contractors. The SEC has brought enforcement actions against companies whose agreements technically permitted government reporting while requiring employees to notify the company before responding to any agency request. That kind of conditional permission still violates the rule.5U.S. Securities and Exchange Commission. Whistleblower Protections
NLRB Limits on Severance NDAs
The National Labor Relations Board’s 2023 decision in McLaren Macomb held that offering a severance agreement with broad confidentiality or non-disparagement clauses to non-supervisory employees violates Section 7 of the National Labor Relations Act, which protects employees’ rights to engage in collective activity for mutual aid or protection.6Office of the Law Revision Counsel. 29 USC 157 – Right of Employees The Board reasoned that simply offering an overbroad agreement is coercive, because employees may feel they must surrender their rights to receive benefits.7National Labor Relations Board. Board Rules That Employers May Not Offer Severance Agreements Requiring Broad Waivers When an NDA is bundled into severance, the confidentiality terms should be tied to specific proprietary information rather than sweeping all discussion of the employment relationship.
Tax Treatment Under Section 162(q)
Since December 2017, IRC Section 162(q) denies a tax deduction for any settlement payment related to sexual harassment or sexual abuse if the settlement is subject to a nondisclosure agreement. Attorney fees connected to the settlement are also non-deductible for the paying party.8Internal Revenue Service. Certain Payments Related to Sexual Harassment and Sexual Abuse The person receiving the settlement can still deduct their own attorney fees if those fees would otherwise be deductible.9Internal Revenue Service. Section 162(q) FAQ The practical effect is a direct financial reason to leave an NDA out of harassment-related settlements.
Trade Secrets vs. Ordinary Confidential Information
The two categories carry different protections, and the duration you choose in your NDA should reflect which one applies.
Under federal law, a trade secret is information that derives independent economic value from not being generally known and is the subject of reasonable measures to maintain its secrecy.10Office of the Law Revision Counsel. 18 USC 1839 – Definitions The definition covers formulas, patterns, compilations, programs, methods, techniques, and processes, but both elements must be present. If you do not actively protect the information, or if it does not give you a competitive edge from being secret, it is not a trade secret regardless of what your NDA says.
General confidential information — salary data, internal org charts, draft marketing strategies — can still be protected, but only for as long as the contract term lasts. Once the NDA expires, the obligation ends. Trade secrets retain protection under the DTSA and most state trade secret laws for as long as the information remains secret and valuable.
Courts examine whether you actually treated the information as secret: restricted access, password protection, need-to-know policies. Labeling something a trade secret in a contract while leaving it on an unsecured drive will not hold up.
When Courts Refuse to Enforce
An NDA is a contract, and like any contract it can fail. The common reasons:
- Overbroad scope. An NDA that tries to cover “all information” without meaningful limits is vulnerable; if the receiving party cannot reasonably determine what they are supposed to protect, the definition may be struck as too vague.
- Lack of consideration. A contract requires something of value exchanged by both sides. When an NDA is signed at the start of a job, the employment itself is the consideration. Asking an existing employee to sign a new NDA mid-employment is trickier, and some courts require additional consideration beyond continued employment, such as a bonus, raise, or access to new responsibilities.
- Covering information that was not actually treated as confidential. Casual sharing, no markings, no access controls, and the court may find there was nothing confidential to protect.
- Requiring illegal conduct. An NDA that asks someone to conceal criminal activity, fraud, or workplace safety violations is unenforceable on its face.
- Unreasonable duration. A five- or ten-year term on general business information with a short shelf life may be found unreasonable, especially in a fast-moving industry.
The analysis is fact-specific, and courts in different states weigh these factors differently. The pattern is consistent: narrow, well-defined NDAs supported by real consideration hold up. Overreaching ones do not.
Remedies If Someone Breaches
The injured party typically pursues one or more of three remedies.
An injunction is a court order directing the breaching party to stop the unauthorized disclosure immediately. To obtain one, the disclosing party generally must show irreparable harm, meaning damage that money alone cannot fix. Many NDAs include a clause stating that a breach will cause irreparable injury, and while some courts treat that as presumptive, most federal courts still require an independent showing. Speed matters: the longer you wait after discovering a breach, the harder it becomes to argue the harm is irreparable.
Actual damages compensate measurable financial harm — lost profits, diminished value of intellectual property, cost of competitive advantage destroyed by the leak. The burden of proof is on the plaintiff, and expert testimony on valuation is common. Courts may also award attorney fees if the NDA includes a fee-shifting provision.
Liquidated damages set a predetermined dollar figure for a breach, which saves the injured party from having to prove exact losses. Courts enforce the clause only when actual damages were difficult to estimate at signing and the specified amount is a reasonable forecast of the anticipated harm. If the number looks more like a punishment than a genuine estimate, courts strike it as an unenforceable penalty.
An NDA Is Not a Non-Compete
The two agreements get confused, and they do different jobs. An NDA protects specific information: do not share or use what you learned. A non-compete restricts where you can work: do not join a competitor for a certain period. NDAs are generally easier to enforce because they target information rather than a person’s ability to earn a living, which courts scrutinize more aggressively. You can be bound by an NDA and still take a job at a competing company, as long as you do not bring protected information with you.