A nondisclosure agreement is a legally binding contract in which one party, or both, promises not to share specified confidential information with outsiders. Whether a given NDA actually holds up depends on three things: how precisely it defines what is confidential, whether each signer received something of value in return, and whether its restrictions run into federal or state protections for whistleblowers, harassment victims, and workers talking about their pay.
What a Working NDA Has to Contain
The single most important piece of any NDA is a clear definition of “confidential information.” Language like “all business information” invites disputes and often fails in court. Strong agreements list specific categories: financial projections, customer lists, software source code, manufacturing processes, marketing strategies. The more precisely the agreement draws the line, the easier it is to enforce.
Duration matters next. Confidentiality obligations commonly run one to five years after the relationship ends. Trade secrets can warrant indefinite protection because their value depends on staying secret. A five-year window covering a product launch timeline makes sense; the information goes stale on its own. A formula or algorithm can hold commercial value for decades, and the agreement should reflect that.
Most NDAs also include a return-or-destroy clause requiring the receiving party to hand back or delete all confidential materials when the relationship ends. That covers physical documents, digital files, and any notes or summaries drawn from the original. Some agreements require written certification that destruction is complete. Skipping this step can trigger a breach claim even if the receiving party never actually used the information.
One-Way vs. Mutual Agreements
A unilateral NDA flows in one direction. One party shares confidential information, and the other agrees not to disclose it. This is the standard arrangement when a company onboards a new employee or hires a consultant: the company has secrets to protect, the signer typically does not.
A mutual NDA protects both sides. Each party shares sensitive information and each accepts confidentiality obligations. This structure fits merger talks, joint ventures, and partnership negotiations where both companies need to open their books. The practical difference is that a mutual NDA gives both sides standing to sue if the other leaks, which tends to keep everyone more careful.
What No NDA Can Lock Down
Certain categories of information fall outside any NDA, no matter how the contract is worded. Well-drafted agreements say so; when they do not, courts often read these exclusions in anyway.
- Information that becomes publicly available through no fault of the receiving party. A product spec published in a press release cannot stay “confidential.”
- Information the receiving party already knew before signing. Proving this usually requires date-stamped documentation like emails or internal reports predating the NDA.
- Information the receiving party develops independently, without using the disclosing party’s confidential data.
- Information received from a third party who had no obligation to keep it secret. The receiving party has to show the third party was not violating its own confidentiality duties by sharing.
What Makes It Enforceable
Like any contract, an NDA needs consideration: something of value exchanged by both sides. For a new hire, the job itself usually counts. For an existing employee asked to sign mid-employment, the analysis is harder. Some jurisdictions accept continued employment as sufficient consideration; others require something new, such as a bonus, a raise, access to previously restricted information, or additional stock options. An NDA signed mid-stream with nothing new offered risks being declared unenforceable.
Courts also look at scope. An agreement that tries to classify every piece of information an employee encounters as confidential, or that runs far longer than the information’s useful life, faces skepticism. The strongest NDAs are narrow enough that a court can read the definition and immediately understand what is in and what is out.
Federal Limits That Override the Contract
Several federal laws trump NDA language in specific situations. These come up regularly, and an NDA that ignores them can be struck down or expose the employer to penalties.
Whistleblower Immunity Under the Defend Trade Secrets Act
Under the Defend Trade Secrets Act, no one can be held criminally or civilly liable for disclosing a trade secret to a government official or attorney when the purpose is reporting a suspected legal violation.1Office of the Law Revision Counsel. 18 USC 1833 – Exceptions to Prohibitions The same immunity covers trade secret information included in a court filing made under seal. No NDA can override this.
Employers are required to include a notice about this immunity in every contract or agreement governing trade secrets or confidential information. A cross-reference to a company policy document that explains reporting procedures satisfies the requirement. Employers who skip the notice lose the right to seek exemplary damages or attorney fees if they later sue that employee for trade secret theft.1Office of the Law Revision Counsel. 18 USC 1833 – Exceptions to Prohibitions
The Speak Out Act and Sexual Harassment Claims
Since December 2022, the federal Speak Out Act has made pre-dispute nondisclosure and nondisparagement clauses unenforceable in cases involving sexual assault or sexual harassment.2Congress.gov. Text – S.4524 – 117th Congress (2021-2022) Speak Out Act “Pre-dispute” is the key word. If you signed an NDA as part of your employment agreement and a harassment incident happens afterward, the NDA cannot keep you quiet about that incident.
The Act does not void NDAs signed as part of a settlement after a harassment claim has already been made; those remain enforceable if the claimant agreed voluntarily. It also does not affect trade secret protections. An employer can still enforce confidentiality over genuinely proprietary business information even in the context of a harassment dispute.2Congress.gov. Text – S.4524 – 117th Congress (2021-2022) Speak Out Act A growing number of states have gone further, covering broader categories of discrimination and limiting even post-settlement confidentiality clauses in harassment cases.
Talking About Pay and Working Conditions
Federal labor law protects employees’ right to talk with coworkers about wages, benefits, and working conditions. The National Labor Relations Act grants employees the right to engage in “concerted activities” for mutual aid or protection, and discussing pay qualifies.3Office of the Law Revision Counsel. 29 USC 157 – Rights of Employees An NDA or workplace policy that prohibits employees from sharing salary information with each other is unlawful regardless of what the contract says.4National Labor Relations Board. Your Right to Discuss Wages These protections apply whether or not employees are represented by a union.
The National Labor Relations Board extended this reasoning to severance offers in McLaren Macomb, ruling that employers cannot even offer severance agreements containing broad confidentiality or nondisparagement clauses that would chill employees from exercising these rights. Simply presenting such an agreement violates federal labor law, because employees may feel pressured to surrender their rights to receive severance benefits.5National Labor Relations Board. Board Rules That Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights
Tax Cost of Harassment Settlement NDAs
If you are an employer settling a sexual harassment or abuse claim and the settlement includes a nondisclosure agreement, the settlement payment is not tax-deductible. Neither are the attorney fees connected to it.6Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses The rule was added by the Tax Cuts and Jobs Act in 2017 to remove the financial incentive for companies to buy silence in harassment cases.
The restriction applies only to the paying party. If you received a settlement, you can still deduct your own attorney fees to the extent they are otherwise deductible under the tax code.7Internal Revenue Service. Certain Payments Related to Sexual Harassment and Sexual Abuse For employers, the practical point is that including an NDA in a harassment settlement adds a tax cost on top of the legal risk. Dropping the nondisclosure clause from the settlement restores the deduction.
What Happens When Someone Breaches
When someone violates an NDA, the injured party has several avenues for recovery. The remedies available depend on the contract, the underlying information, and how badly the breach hurt.
Injunctive Relief
The first move in most NDA breach cases is seeking an injunction, a court order requiring the breaching party to stop disclosing the information. Under the Defend Trade Secrets Act, a court can issue an injunction to prevent actual or threatened misappropriation of trade secrets. The statute includes a limit: the injunction cannot prevent someone from taking a new job, and any conditions placed on future employment must rest on evidence of a real threat rather than the mere fact that the person has knowledge in their head.8Office of the Law Revision Counsel. 18 USC 1836 – Civil Proceedings
Compensatory and Exemplary Damages
Beyond stopping the leak, the injured party can recover money. Compensatory damages cover actual losses from the breach: lost revenue, diminished market value of the trade secret, or the profits the breaching party earned from misusing the information. When those are hard to calculate, courts can impose a reasonable royalty as an alternative measure, effectively billing the breaching party for what a legitimate license would have cost.8Office of the Law Revision Counsel. 18 USC 1836 – Civil Proceedings
For willful and malicious misappropriation, a court can double the compensatory damages as an exemplary (punitive) award, capped at two times the compensatory amount. Attorney fees can also be awarded to the prevailing party when the misappropriation was willful or when a claim was brought in bad faith.8Office of the Law Revision Counsel. 18 USC 1836 – Civil Proceedings
Liquidated Damages Clauses
Many NDAs include a liquidated damages clause setting a fixed dollar amount owed for a breach. These can be useful because proving the actual financial harm from a leak is often difficult. Courts will enforce them, but only if the amount is a reasonable estimate of the anticipated harm and the actual damages would be hard to calculate.
Courts look at substance, not labels. Calling a clause “liquidated damages” does not make it enforceable if the amount is wildly disproportionate to any realistic loss. If a court finds the figure is really a penalty designed to scare the other party into compliance, the clause gets thrown out, and the injured party falls back on proving actual damages, which is exactly the difficult exercise the clause was supposed to avoid.
What It Costs to Put One Together
Attorney fees to draft or review a standard NDA typically run between $100 and $600, depending on complexity and the attorney’s market. A simple one-way employee NDA sits at the lower end; a mutual NDA for a complex joint venture with heavily negotiated terms sits at the higher. Templates are widely available for free or a few dollars, but a template that does not match your situation can create more problems than it solves, particularly around the definition of confidential information and the exclusions.
NDAs do not legally require notarization, though some parties request it for extra authentication. Notary fees for a standard acknowledgment are modest, generally $5 to $10 in most jurisdictions, with some states allowing up to $25 and a handful setting no statutory cap at all.