Non-Disclosure Agreements: The Key to Ensuring your Business’s Secrets stay a Secret

By: Nick Pearson, Fall Associate 

What is a Non-Disclosure Agreement?

 A non-disclosure agreement (“NDA”) is an agreement in contract law which parties enter into to ensure certain information will remain confidential.[1] An NDA is typically entered into by two parties: the party that provides its own confidential information (“disclosing party”) and the party which receives the confidential information (“receiving party”).  An NDA can either be unilateral or mutual, where one or both parties, respectively, seek to protect their confidential information.

The types of proprietary information that businesses often choose to keep confidential through NDAs include: business/marketing plans, formulas, processes, and customer lists.[2] Some parties may even choose to protect the special knowledge and skills that an employee will learn on the job.[3] However, it’s important to note that restrictions on general skills or knowledge acquired on the job are unlikely to be enforceable as “confidential”.[4]

 How can Non-Disclosure Agreements help your small business?

Even if your small business is in its earliest stages, your ideas and strategies are incredibly valuable, and you should take steps to protect them. Protecting proprietary information from competitors, and even the public, is essential for providing your small business with a commercial advantage. For example, a small business owner who opens a bakery specializing in vegan based cakes may want to keep the recipes associated with these cakes secret. However, the small business owner will likely have to hire employees to assist him in producing these vegan based cakes, thus sharing the recipe with these employees. The solution to ensuring that these employees do not share the baker’s vegan based cake recipe with competitors or the greater public lies in heaving the employee sign a unilateral NDA with the employer. 

The example above could be changed, and in turn, require a different type of NDA. For example, if the baker above decided to share his vegan based cake recipe in exchange for another baker’s vegan based pizza dough recipe, both small business owners would seek to keep this proprietary information confidential, and they would enter a mutual NDA as opposed to a unilateral NDA.

What does a Non-Disclosure Agreement look like?

A typical NDA will include numerous sections. First, the NDA must identify the parties that will be bound by the contract itself. Second, the NDA will include a list of definitions that will define the ambiguous terms of the contract. The most important term to define in this section is usually that of “confidential information” as this will serve as the guideline for courts in determining what proprietary information was protected, should a litigation arise down the road. Third, the NDA will include an exclusions section[5], which will identify the types of information that are not considered “confidential information” for purposes of the NDA.

The exclusions section will likely state that the following are not considered “confidential information”: any information that is already known to the public[6], any information the receiving party is already in lawful possession of, any information that the receiving party obtained from a third party in lawful possession of the information[7], any confidential information that is later disclosed to a third party by the disclosing party, and any information that is independently developed by the receiving party without reverse engineering the confidential information of the disclosing party. It is important to note that some courts have found that “general skills or knowledge acquired during the course of employment” by an employee cannot be considered confidential.[8]

Fourth, the NDA will state that both parties must take reasonable efforts to protect the confidential information defined in the NDA. Fifth, the NDA will state who, if anyone, the receiving party may disclose the confidential information with. For example, a party may need to disclose confidential information with another employee in the ordinary course of business. Finally, the NDA will define the duration of the NDA. In sum, NDAs must not broadly define “confidential information,” rather narrowly, to limit ambiguities and to ensure enforceability.

Are Non-Disclosure agreements enforceable in the District of Columbia?

Yes! Keep in mind that courts in the District of Columbia have yet to determine specific requirements that NDAs must meet in order to be enforceable. However, the District of Columbia has adopted its own version of the federal Uniform Trade Secrets Act[9], which governs trade secrets. Trade secrets are comparable to the proprietary information typically deemed “confidential” in NDAs. The DC Law establishes that a restrictive covenant regarding a trade secret in the District of Columbia is enforceable if it is (1) limited in duration and (2) narrowly tailored to protect an employer’s legitimate business interest.[10] Thus, a good rule of thumb to ensure an NDA will be enforceable in DC is to follow the same criteria. 

 How can we help?

 Every small business is unique because of its proprietary information that provides its commercial value. Keeping such information confidential will help protect your business’ competitive edge. Here, at Taylor Law, PLLC, we can help you determine which information should remain confidential before drafting a tailored NDA that protects both your ideas and your business. Ping us!

[1] See Legal Information Institute, Non-Disclosure Agreement, July 2020, https://www.law.cornell.edu/wex/nondisclosure_agreement.

[2] See Inc. Editorial, Proprietary Information, https://www.inc.com/encyclopedia/proprietary-information.html

[3] See Inc. Editorial, Proprietary Information, https://www.inc.com/encyclopedia/proprietary-information.html

[4] See Junker v. Plummer, 67 N.E.2d. 667, 669 (Mass. 1946).

[5] See Carr &  Ferrell LLP, What is a non-disclosure agreement?, https://www.carrferrell.com/what-is-a-non-disclosure-agreement.

[6] See Nagler v. Garcia, 370 F. App’x 678, 681 (6th Cir. 2010).

[7] See ACAS Acquisitions (Precitech) Inc. v. Hobert, 923 A.2d 1076, 1090 (N.H. 2007).

[8] See Junker v. Plummer, 67 N.E.2d. 667, 669 (Mass. 1946).

[9] See D.C. Code §§ 36-401 – 36-410 (2020).

[10] See Hospitality Staffing Solutions, LLC v. Reyes, 2010 U.S. Dist. LEXIS 93810 (D.D.C. 2010).