When should businesses use a nondisclosure agreement?

On Behalf of Dunlap Fiore, LLC |

In the normal course of business, Louisiana companies might conduct business that could reveal confidential or secret information about their company. While this might be necessary to conduct certain business, when an employee or a party to a business transaction has this information, a company might have some concerns regarding this information. In order to address this concern, companies will enter into agreements to protect their interests and confidentiality.

When should businesses use a nondisclosure agreement? A confidentiality agreement or a nondisclosure agreement might be a necessary contract to enter into if an employee or another business has privileged information regarding the company. The nondisclosure agreement creates a contract between the parties, resulting in the promise to protect the confidentiality of the information disclosed to the employee or business.

One major reason to use a nondisclosure agreement is for trade secret protection. A trade secret is unlike a patent, which is part of public domain. Protection is only afforded to trade secrets if the owner of the trade secret takes certain measures to keep it a secret. A nondisclosure agreement is used to prevent a trade secret from becoming part of public domain.

A nondisclosure agreement is also used to create a confidential relationship. This could happen in two situations. First, this could occur in a mutually beneficial relationship where both sides of the party benefit from an exchange of secret information. This also occurs in one-way relationships and usually occurs in employment settings. The nondisclosure agreement entails that the employee agrees to keep information confidential in exchange for employment.

When a nondisclosure agreement is entered into, the terms of the agreement must be reasonable and agreed upon. This means that terms such as time period for the agreement must be reasonable for the type of agreement entered into. Failure to meet these terms or agree to these terms could lead to disputes and even business litigation. Because of this, it is important to take the time to understand the document and carefully enter into one. Those dealing with this or other business law issues should seek to gain information about ways to resolve them.

Source: Smallbusiness.findlaw.com, “A Nondisclosure Agreement,” accessed Jan. 25, 2016