What Happens If You Break a Non-Disclosure Agreement?
Reviewed by Carina Jenkins, J.D.
Many situations exist that require you to hold information confidential. In some cases, the person or entity that wants to protect its data requires others to sign a non-disclosure agreement stating they won't disclose certain information and can be held accountable if they do.
NDA stands for non-disclosure agreement. It's a formal document that requires one or more parties to hold certain information confidential.
A unilateral NDA is one that requires one party to keep information confidential. This is a common type of NDA included in employment contracts. An employer may require that you sign an agreement saying you won't share information such as client lists or proprietary company data with those outside of the business.
A bilateral NDA is one that requires two parties to keep information confidential. A common example might be one signed between two business owners who are considering a merger. They'd need to review details about each other's businesses, and an NDA protects them both.
A multilateral NDA is one that requires more than two parties to keep information confidential. An example of a time this type of NDA might be used is during a technology project that involves the participation of multiple vendors. Project team members might have to engage with data and proprietary systems belonging to other partners during the work, and a multilateral NDA helps ensure everyone involved keeps everyone else's information confidential.
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Typically, NDA contracts provide specific details about what happens if someone breaks the NDA. Common potential consequences for breaching an NDA can include:
- The contract may be terminated. For example, if you are an employee and breach an NDA, this may be considered an offense you can be fired for, even if you have an employment contract. Or if you are a vendor and breach a client's NDA, they may be able to end the contract without any negative consequences on their end.
- You might have fees and other economic penalties. Some NDAs include specific monetary consequences for breaching confidentiality. For example, if the NDA says you must pay $1,000 for each breach, you could end up owing the other entity if you break the NDA. In other cases, economic penalties depend on whether the breach resulted in financial loss for the other party. In such cases, you may be required to compensate the other party for all or some of those losses.
- You could open yourself up to lawsuits. Because an NDA is technically a contract, if you breach the NDA and don't make good on any compensation required by the document, the other party may be able to sue you for its losses. This can cause you to deal with mounting legal costs.
- You could face criminal charges. In some cases, breaching an NDA might result in criminal charges. Typically, breach of a contract is a civil matter. However, if the information you disclose is related to national security or you breach an NDA in a way that also involves committing a crime like securities fraud, you may face criminal charges.
There are some limitations on NDAs, which can vary by state. For example, an NDA preventing an employee from sharing information about sexual harassment or criminal activity may be unenforceable.
It's important that you understand the nature of any contract you sign, including a non-disclosure agreement. Make sure you know what information is protected by the agreement, how long it's protected and in what situations it's okay to disclose information. Knowledge is the best way to ensure you can reasonably adhere to the NDA and avoid any potential legal woes down the road.
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