Non-Disclosure Agreement
A legally binding contract that requires one or more parties to keep specified information confidential.
A non-disclosure agreement (NDA), also called a confidentiality agreement, is a contract in which one or both parties agree not to disclose certain information to third parties. One-way NDAs (disclosing party to receiving party) are common in employment, business partnerships, and vendor relationships. Mutual NDAs (both parties bind each other) are used in merger discussions and joint ventures.
NDAs are legally enforceable when they describe confidential information with reasonable specificity, serve a legitimate business purpose, have a defined scope and duration, and do not impose unreasonable restrictions. Courts will not enforce NDAs that are overbroad, cover public information, or last indefinitely.
In employment contexts, some states (California, New York, Illinois) have enacted laws restricting NDAs that cover workplace harassment or discrimination claims. Employees are generally advised to have an attorney review any NDA before signing, especially those presented at termination alongside a settlement agreement.
Real-World Example
Before sharing their prototype design with a potential manufacturer, the startup required the manufacturer to sign an NDA covering all proprietary specifications and cost structures.