NDAs are legal contracts between two parties which aim to prevent them (or one of them) from sharing information with others. Non-disclosure agreements or clauses may be used at the start of an employment relationship to keep business information confidential. Sometimes, confidentiality clauses are included in settlement agreements in exchange for money, designed to prevent a person from speaking out about a particular issue. If you’re presented with an NDA and aren’t sure what to do, “You should get independent legal advice and ask that your employer pays for it. That is standard practice.”
Furthermore, anyone confronted with an NDA should look out for restrictions it places on who they can share information with. While NDAs typically allow signatories to share information privately with a spouse, doctor or family member. “If the agreement containing the NDA takes away employment rights, like unfair dismissal, or discrimination, it might not be binding unless the person [signing it] has received independent legal advice beforehand. “It is dangerous to break it without seeking advice first though.“ Breaching an NDA could result in being sued for damages (i.e. compensation) and/or being made subject to an injunction – a court order which would prevent you being able to disclose the information in question.
How to Get out of a Nondisclosure Agreement?
A nondisclosure agreement (NDA) is a contract between two parties where one, or both, agree to keep some specific information confidential. As with any contract, a nondisclosure agreement can be legally broken or ended. For example, the agreement might not be legally enforceable, in which case you can break it because you’ll win a lawsuit. Alternately, you might negotiate with the other party to end the agreement early. Analyze your situation and find the method that works best for you.
Checking If the Agreement is Enforceable
• Check that NDA is sufficiently clear: A contract requires that both parties agree to the same thing. If the contract is too vague or unclear, then you might be able to argue that it is void.
• Identify whether each side received consideration: Consideration is the legal term meaning something of value. It can provide either a benefit or a detriment to either side. Both sides must give up something of value for a valid contract to exist. For example, both sides agreeing to keep information confidential qualifies as mutual consideration. One side giving you money or work also qualifies as consideration.
• Confirm the agreement is in writing: Due to the Statute of Frauds, an agreement generally must be in writing to be enforceable if it lasts for more than a year. If your NDA was only verbal, you can probably break it after a year.
• Identify a misrepresentation: You can probably cancel an NDA if the other side made a misrepresentation of fact, and you relied on that misrepresentation. Misrepresentations can be affirmative untruths or a failure to disclose information.
• Assess whether the NDA is unconscionable: This is a vague standard, but unconscionability generally exists when the terms of the contract are entirely one-sided or oppressive. Often, the parties have unequal bargaining power and a lopsided NDA results. However, if the confidential information is a trade secret, then a court might uphold the duty not to disclose it.
• Check whether the NDA is anti-competitive: Some courts will reject an NDA that prevents people from working. If an overly broad NDA prevents you from getting another job in your industry, then you can usually challenge the legality of the agreement. An NDA is not the same as a non-competition covenant. An NDA can ask you not to disclose information, but it cannot enforce this restriction by preventing you from taking another job. If you believe that your employer is trying to use your NDA to prevent you from getting another job in the industry, you can take it to court.
• Look to see if the other side breached the agreement: If the other side has broken the NDA, then you might not need to comply with it. This is called a “breach.” However, the other side’s breach must be serious (“material”) to relieve you of responsibility for upholding your end of the contract.
• Consult with an attorney: These legal questions are difficult to analyze on your own. Every situation is slightly different, and only a qualified attorney can give you proper legal advice. Also every jurisdiction has its own laws regarding NDAs, and you need to know how a court in your jurisdiction will analyze the issues. Get a referral by contacting your nearest bar association. Call up the lawyer and schedule a consultation.
• Talk about what you should do if the NDA is illegal: For example, you might go ahead and break it, but you’ll be inviting a lawsuit in turn. Discuss your options with your lawyer so you can make an informed decision.
Terminating the Agreement If You Can
• Identify why you want to terminate the NDA: The other side can agree to end a nondisclosure agreement early. For example, the confidential information might no longer have any value. This might be the best reason to end an NDA early. If you think the NDA is not legally enforceable, you can also ask the other side to let you out early for that reason. However, you can expect the other side to push back, since they probably don’t think they used an illegal contract. Check whether the NDA is about to expire. If it is, you can probably sit tight and not do anything.
• Find an early termination clause: Some NDAs have clauses that explain how the NDA can be terminated by either side. Read your NDA to see if there is a clause. Each early termination clause is a little different, so show it to your lawyer so you understand it fully.
• Ask the other side to terminate the NDA: You should write a letter explaining why you think the NDA should be ended early. Format a business letter and keep your tone professional. Explain why you think the NDA is no longer necessary and ask to be let out of it. If you think the NDA is not enforceable, you should explain your reasoning. However, your lawyer should probably draft this section or at least review it. Realize that the other side doesn’t have to agree to let you out of a valid NDA, and they might disagree with you whether the NDA is unenforceable.
• Draft a mutual rescission and release agreement: If the other side agrees to terminate the NDA, you should each sign a rescission agreement. Don’t simply take the other side’s verbal promise that the NDA has been suspended. Your lawyer can draft the necessary paperwork. A valid rescission agreement should identify the NDA by date and explicitly state that parties mutually agree to rescind the original agreement. Keep a copy of the signed agreement with your records.
Defending Against a Breach of Contract Lawsuit
• Read the complaint: If you break the nondisclosure agreement, the other side might sue you for breach of contract. They will start a lawsuit by filing a “complaint” in court. The complaint will explain what information you disclosed without permission. You’ll receive a copy after the other side files the lawsuit. The person who files the lawsuit is the “plaintiff,” and they should identify clearly what confidential information you disclosed or used. They should state sufficient facts to support their allegation.
• Assess whether the complaint is factually incorrect: Sometimes, the plaintiff doesn’t have their facts straight. They might accuse you of something you didn’t do.
• Gather supporting evidence for your defenses: You can raise any defense in the first section of this article. Begin gathering as much information as possible to share with your lawyer. For example, if you think the NDA is anti-competitive, then all you need is a copy of the NDA. If the other side made misrepresentations, you should document them. Write down your own memories of any conversation you had with the other side and look for email communications. Another popular defense is to argue that the other side made the confidential information publicly available. Gather documentation. For example, a company president might have disclosed information when giving an interview to a trade publication.
• Respond to the lawsuit: Typically, you will file either an “answer” or a “motion to dismiss” in response to the complaint. Check how much time you have to respond to the lawsuit.
In an answer, you admit or deny each allegation. If you don’t have sufficient information, you can also refuse to admit or deny. You should also raise any defenses that you have (e.g., why the NDA is illegal). If you don’t raise your defenses in the answer, you can’t raise them later. In a motion to dismiss, you ask the judge to throw out the case because the complaint is defective in some way. For example, you can argue the plaintiff filed the lawsuit in the wrong court.
• Work with a lawyer on your defense: Each lawsuit is different. Your lawyer will investigate the facts and come up with your best defense. Talk with your lawyer about how the lawsuit will proceed. Generally, lawsuits follow this sequence:
I. Discovery: This is the fact-finding phase. You can request documents from the other side, or give them questions to answer under oath. You might also participate in a deposition, where you answer question in person.
II. Summary judgment motion: After discovery, either side might seek summary judgment. You ask the judge to decide in your favor because no set of facts can support the other side.
III. Settlement: You can settle at any point in the lawsuit. In fact, settlement negotiations might be ongoing right up until a jury announces the verdict.
• Trial: Your lawyer will identify your witnesses and serve them with subpoenas. Ideally, your lawyer should also prep you for your testimony. You can have a trial before either a judge or jury.
What Are Some Uses for Non-Disclosure Agreements?
Non-disclosure agreements have become increasingly common. Here are a few of the common ways they come up:
Employee non-disclosure agreements: If your business deals in sensitive information, inventions, research or product development, you’ll want to make sure your employees don’t divulge company information to outsiders. Even if you just have ordinary business information such as sales data and customer lists, an employee nondisclosure agreement can help keep secret information out of the hands of competitors.
Independent contractor agreements: Whether it’s your virtual assistant, your part-time bookkeeper or the person you hired to help with a special project, independent contractors frequently have access to information that you don’t want made public.
Agreements with people from whom you are seeking funding: If you approach venture capitalists or local investors, you’ll need to divulge information about your products, your finances and your plans. An NDA can help ensure that they don’t share your ideas with a competing startup.
Agreements with the people with whom you do business: Doctors and lawyers are obligated to keep their patients’ and clients’ information confidential, but that’s not true of most other businesspeople. If the people you do business with receive or have access to your confidential information, you may want them to sign an NDA. Examples include the company you hire to manufacture your new product and the cleaning service whose workers are alone in your office at night.
Agreements in litigation or arbitration: When two parties are in a dispute, there is a formal process for exchanging information. Parties routinely require one another to sign confidentiality agreements that prohibit disclosure or use of the information outside of the litigation.
During the course of your business or employment, it’s likely that you will be asked to sign someone’s non-disclosure agreement. Remember that non-disclosure agreements can be contained in other documents, so you should look for headings such as “Confidentiality,” “Confidential Information,” or “Non-Disclosure.” You should start by reading the agreement. Most NDAs are prepared from some sort of NDA template or form, and they can be long and include things that don’t seem to apply to your situation. After reading it, ask yourself whether it creates any obligations that you will have trouble fulfilling. If so, discuss these with the person who asked you to sign the NDA and see if you can renegotiate the terms. If you have confidential information, beware of a confidentiality statement that might look like an NDA but has just the opposite effect. This sort of clause will typically say that the agreement does not create a confidential relationship or does not create any obligation of secrecy or confidentiality. That means that the other party has no obligation to keep any of your confidential information secret. Whether you draft one from scratch or use a non-disclosure agreement form, an NDA is a great way to protect sensitive business information from being disclosed to the public before you’re ready. If you routinely receive confidential information from others, you’ll probably also be asked to sign their NDAs. Just be sure you read them first and understand your obligations.
Uses of Non-Disclosure Agreements
Business owners often need to discuss proprietary or sensitive information with outside individuals. Sharing information is crucial when seeking investment, finding potential partners in a business venture, obtaining new clients, or hiring key employees. In order to protect the person or people with whom this information is shared, non-disclosure agreements have long been a legal framework to maintain trust and prevent crucial information from leaking out where it could undermine the profitability inherent to that content. Information that may require NDAs includes secret recipes, proprietary formulas, and manufacturing processes. Protected information also typically includes client or sales contacts lists, non-public accounting figures, or any specific item that sets one company apart from another. A company hiring outside consultants may also require those individuals, who will be handling sensitive data, to sign an NDA so that they do not disclose those details at any point. Full-time employees may also be required to sign an NDA when working on new projects that haven’t yet been made public, as the effects of information leakage could damage the value of the project and the company as a whole.
When you need a Non-Disclosure Attorney on your side, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
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