A non-disclosure agreement is a contract that allows a trade secret owner to impose contractual liability for any disclosure or misappropriation of its trade secrets.  Non-disclosure agreements allow companies to disclose their trade secrets to new employees or to third-parties (like potential customers or investors) with less danger of destroying the secrecy of the trade secret.   A typical non-disclosure agreement requires the other party to keep trade secrets in the strictest confidence, prohibits the other party from disclosing the information without prior written consent, and warns the other party that it cannot make use of the trade secret for his or her personal benefit.  Here are five reasons why using non-disclosure agreements can benefit your company:

  1. Setting Employee Expectations
    A specific non-disclosure agreement that sets forth the consequences of a breach is a great tool for employers to emphasize to both new and existing employees the importance of maintaining the confidentiality of a company’s trade secrets.  It can also provide written guidance for how an employee can and cannot handle the company’s trade secrets.  For example, the company might place restrictions on the employee’s ability to use trade secret files on personal devices.  If an employee is later caught misappropriating a trade secret, a signed non-disclosure agreement can be an effective tool to counter any arguments from the employee that he or she did not believe certain information to be secret.
  2. Establishing Employer Best Practices for Maintaining Secrecy
    The existence of non-disclosure agreements is great evidence to establish that a company takes steps that are reasonable under the circumstance to maintain the secrecy of a trade secret.  Plus, the process of explaining a non-disclosure agreement to a new employee can serve as a reminder to the employer to reevaluate its trade secrets policies and procedures.
  3. Allowing for the Sharing of Trade Secret Information with Third Parties   
    Often, an investor or customer will need to know the details of a company’s trade secrets.  A company’s disclosure of trade secrets to third parties, however, will often destroy the secrecy of the trade secret.  Non-disclosure agreements prevent this problem by allowing the company to provide a limited disclosure of the trade secret under circumstances designed to maintain its confidentiality, thus preserving the confidentiality of the trade secret.
  4. Providing an Additional Cause of Action
    The Texas Uniform Trade Secrets Act (TUTSA) does not affect contractual remedies, whether or not those remedies are based upon misappropriation of a trade secret.  This provides companies with an additional cause of action against a misappropriating employee, which is helpful, especially since a breach of contract claim is potentially simpler to litigate than navigating the various paths for a TUTSA misappropriation claim.  Plus, unlike TUTSA, which requires a “wiful and malicious” misappropriation to recover attorneys’ fees, attorneys’ fees are generally available to a prevailing plaintiff in a breach of contract claim.
  5. Ease of Enforcement
    Unlike covenants not to compete, confidentiality agreements are not viewed as restraints on trade and therefore are not presumptively against public policy.  Thus, they are not subject to reasonable time, geographic, and scope of activity limitations that apply to covenants not to compete.