How to Write a Non-Disclosure Agreement

How to Write a Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement, commonly known as an NDA, is a legally binding contract that establishes a confidential relationship between two or more parties. It obligates the receiving party to keep specified information private and restricts its use or disclosure without authorization. Whether you are launching a startup, hiring employees, or entering business negotiations, understanding how to draft an enforceable NDA is essential to protecting your trade secrets and proprietary information.

When Do You Need a Non-Disclosure Agreement?

NDAs serve as the first line of defense whenever sensitive information changes hands. Businesses of every size and individuals in a wide range of situations benefit from having a well-drafted confidentiality agreement in place.

Business Negotiations and Partnerships

Whenever two companies explore a potential partnership, joint venture, merger, or acquisition, both sides share proprietary data such as financial records, customer lists, marketing strategies, and pricing models. An NDA signed before these discussions begin ensures that if the deal falls through, neither party can exploit the information received during negotiations. Courts have consistently upheld NDAs in the context of failed business deals, provided the agreement was properly drafted and the scope of confidential information was clearly defined.

Employment and Hiring

Employers routinely require new hires to sign NDAs during onboarding. Employees gain access to trade secrets, internal systems, and strategic plans that could cause significant harm if disclosed to competitors. Under the Defend Trade Secrets Act of 2016 (DTSA), employers have federal recourse when trade secrets are misappropriated, but a signed NDA strengthens any legal claim considerably. The DTSA also requires employers to include a whistleblower immunity notice in any NDA, informing employees they will not be held liable for disclosing trade secrets to government officials or attorneys for the purpose of reporting suspected legal violations.

Freelancers and Independent Contractors

When you hire a freelancer or independent contractor, they may gain access to your business processes, client information, or product development plans. Unlike employees, independent contractors are not automatically bound by duties of loyalty or confidentiality under common law in most jurisdictions. A standalone NDA is the primary mechanism for ensuring your information remains protected after the engagement ends.

Intellectual Property and Inventions

If you are presenting an invention, software prototype, or creative work to potential investors or collaborators, an NDA is critical. Without one, you risk losing the ability to claim trade secret protection, since both the Uniform Trade Secrets Act (UTSA) and the DTSA require that the owner took reasonable measures to maintain secrecy. Requiring an NDA before disclosure is one of the strongest indicators of reasonable measures a court can consider.

How to Write an NDA: Step-by-Step

Drafting an NDA requires precision. Vague language, overly broad definitions, or missing clauses can render the agreement unenforceable. The following guide walks through each component of a well-constructed NDA.

Step 1: Identify the Parties

Begin by clearly identifying every party using full legal names. For individuals, include their full name and address. For companies, use the registered business name, state of incorporation, and principal address. Designate which party is the Disclosing Party (sharing information) and which is the Receiving Party (obligated to protect it). In a mutual NDA, both parties assume both roles simultaneously.

Step 2: Define Confidential Information

This is the most important section. A definition that is too narrow may leave critical data unprotected, while a definition that is too broad may be struck down as unreasonable.

Best practice is to combine a general statement with specific categories. The general definition might state that confidential information includes all non-public information disclosed by the Disclosing Party, whether in written, oral, electronic, or visual form. Then list specific categories such as trade secrets, business plans, financial data, customer lists, technical specifications, source code, and marketing strategies.

Some NDAs require information to be marked as confidential at the time of disclosure. While this provides clarity, it can leave oral disclosures unprotected unless the agreement includes a follow-up mechanism requiring written confirmation within five to ten business days.

Step 3: Set the Scope and Obligations

Specify what the Receiving Party can and cannot do with the information. At minimum, state that the Receiving Party will not disclose the information to third parties without prior written consent and will use it solely for the Permitted Purpose.

Require the Receiving Party to protect the information using at least the same degree of care it uses for its own confidential information, but in no event less than a reasonable degree of care. This standard aligns with the UTSA's requirement for reasonable measures. Address whether the Receiving Party may share information with employees or advisors, and if so, require those individuals to be bound by equally restrictive obligations.

Step 4: Specify Exclusions

Standard exclusions protect the Receiving Party from liability for information that does not genuinely warrant protection. These include information that was already publicly available at the time of disclosure, information that becomes public through no fault of the Receiving Party, information already in the Receiving Party's possession, information independently developed without reference to the confidential information, and information received from an unrestricted third party.

Include a carve-out for disclosures required by law or court order, typically requiring prompt written notice to the Disclosing Party so they may seek a protective order.

Step 5: Determine the Duration

Specify two time periods: the term during which information may be disclosed, and the survival period during which confidentiality obligations continue after termination.

For most business relationships, a confidentiality period of two to five years is standard. For trade secrets, many NDAs provide that obligations survive for as long as the information qualifies as a trade secret under applicable law. Courts in most states enforce perpetual obligations for genuine trade secrets, though some jurisdictions impose limits on post-employment restrictions.

Step 6: Outline Remedies for Breach

The most common remedy is injunctive relief, allowing the Disclosing Party to seek a court order stopping unauthorized disclosure immediately. NDAs typically state that monetary damages may be insufficient and that injunctive relief may be sought without posting a bond.

The NDA may also allow recovery of actual damages, lost profits, and reasonable attorney fees. Liquidated damages clauses are permissible if the amount represents a reasonable estimate of anticipated harm rather than a penalty.

Step 7: Include Standard Legal Provisions

Include a governing law clause specifying which state's laws apply, a jurisdiction clause for dispute resolution, a severability clause preserving the remainder if one provision is invalidated, an integration clause confirming the NDA is the entire agreement on confidentiality, and a provision addressing assignability.

Choice of governing law matters because trade secret laws vary by state. While 48 states and the District of Columbia have adopted some version of the UTSA, New York and North Carolina rely on common law principles. California's public policy against non-compete agreements can also affect how courts interpret NDA provisions that restrict an individual's ability to work.

Step 8: Review and Sign

Both parties should read the entire agreement carefully before signing. For high-stakes situations, consulting an attorney is advisable. Electronic signatures are legally valid under the E-SIGN Act and the Uniform Electronic Transactions Act (UETA), adopted in 47 states. Each party should retain a fully executed copy.

Mutual vs. Unilateral NDA

A unilateral NDA protects only one party's information. The Disclosing Party shares confidential data, and the Receiving Party agrees to keep it secret. This is common in employment agreements, investor pitches, and vendor relationships where only one side reveals proprietary information.

A mutual NDA protects both parties equally. Each party is simultaneously a Disclosing Party and a Receiving Party. Mutual NDAs are standard for business negotiations, joint ventures, and any situation where both sides share sensitive information.

When deciding which type to use, consider the direction of information flow. If only one side is disclosing, a unilateral NDA is sufficient. If both sides are sharing, a mutual NDA prevents the imbalance of one party being bound while the other is not.

Key Clauses Every NDA Must Include

• Definition of Confidential Information with specific categories and a general catch-all provision
• Obligations of the Receiving Party, including the duty not to disclose and the duty to use information only for the Permitted Purpose
• Exclusions from confidentiality for publicly known information, independently developed information, and legally compelled disclosures
• Term and survival period specifying how long obligations last after the agreement ends
• Remedies for breach, including injunctive relief and damages
• Return or destruction of materials clause requiring the Receiving Party to return or destroy all confidential information upon termination
• Governing law and jurisdiction clause identifying the applicable state law and forum for disputes
• Whistleblower immunity notice as required by the DTSA for agreements with employees and contractors
• Signature blocks with dates, printed names, titles, and company names for all parties

Common Mistakes to Avoid

• Failing to define confidential information with sufficient specificity, which can render the NDA unenforceable
• Using an excessively broad definition that attempts to cover all information ever exchanged, leading courts to invalidate the clause
• Omitting standard exclusions, making the agreement appear one-sided and increasing the risk of judicial scrutiny
• Setting an unreasonably long confidentiality period for general business information rather than trade secrets
• Neglecting the DTSA whistleblower immunity notice, which prevents the employer from recovering exemplary damages or attorney fees in a misappropriation action
• Relying on a generic template without tailoring it to the specific transaction, industry, or jurisdiction
• Failing to specify what happens to confidential information when the agreement terminates
• Not having the agreement signed by an authorized representative of each party

Tips for Small Businesses and Startups

Small businesses face unique challenges with confidentiality. The consequences of an information leak can be disproportionately devastating for a company that relies on a single product or proprietary process for its competitive advantage.

Make NDAs a standard part of your workflow. Every new employee, contractor, vendor, and potential partner should sign one before gaining access to proprietary information. Create a reusable template for common scenarios, but customize it for higher-stakes situations.

Keep agreements enforceable by being reasonable in scope, duration, and remedy provisions. Courts are more likely to uphold agreements narrowly tailored to protect legitimate business interests rather than those attempting to restrict all communication about any company-related topic.

Use mutual NDAs as your default for business negotiations. This signals professionalism and ensures both sides are protected equally. Maintain organized records of all signed NDAs, tracking which parties signed, what was disclosed, and when agreements expire. If a breach occurs, this documentation is critical to enforcement.

Using an online NDA generator can streamline the process significantly. Platforms like Forms Legal allow you to create customized, jurisdiction-aware NDAs in minutes, ensuring your agreement includes all required clauses and complies with federal and state law.