Are Non-Disclosure Agreements Legally Binding?

May 16, 2021

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A non-disclosure agreement is an agreement where all parties share confidential information with each other where all the parties agree not to disclose such information to the third party beyond the terms of the agreement. Rather than getting someone to swear that they’ll keep a secret, a non-disclosure agreement binds them to secrecy through a formal document that requires a signature.

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So, are Non-Disclosure agreements legally binding?

Yes, Non-Disclosure agreements are legally binding. 

Legally binding is the essential key reason why NDAs are created and signed.

For example- Some businesses like Coca-Cola and KFC have managed to keep their trade secrets for 100 years or so. How do they do it?

A non-disclosure agreement (NDA) is the answer. These brands legally bind their employees to not share the recipe or secret to a third party with the help of an NDA.

So how does Non-Disclosure Agreement Binds the concerning parties legally?

A Non Disclosure Agreement is governed by the Indian Contract Act, 1872 and according to it, a Non-Disclosure Agreement (NDA) is a legally binding contract. To make sure that the NDA is legally valid and enforced correctly it is suggested to make a Notarized NDA on a Stamp paper. Businesses have highly sensitive information about their customers, clients, and employees that can not be risked. 

It may be a well-established business or even a startup, every business standing out there develop proprietary practices that give them a competitive edge in the marketplace. So it is important for them to ensure that their information is secured and they don’t get copied or stolen and the best way to do that is with a legally binding NDA.

For creating a good legally binding NDA, both parties should clearly describe the information that has to be confidential in all terms and conditions. Confidentiality can extend to documents, designs, sketches, analyses, source codes, marketing plans, manufacturing processes, and technical procedures.

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What can not be legally bound with a Non-Disclosure Agreement?

Not all information can be secured with a Non-Disclosure Agreement.  Public records such as information filed with the SEC or the address of the company headquarters are not covered by a Non-Disclosure Agreement.

Based on the terms and conditions of your Non-Disclosure Agreement, courts have ways to interrupt the Non-Disclosure Agreement.  If the information is revealed due to a court-ordered subpoena, the aggrieved party may not have legal recourse. Moreover, if one party to the agreement can prove they had knowledge covered in the Non-Disclosure Agreement prior to its signing, or if they can prove they acquired the knowledge outside the agreement, they may be able to avoid a negative judgment. 

This is not Suits we are talking about, and in real life, Non-Disclosure Agreements are an essential part of negotiations for business mergers and corporate takeovers, and a smart choice to have one. 

What are the factors that Render a Non-Disclosure Agreement?

An NDA should be reasonable and specific about what’s considered confidential and non-confidential. There are believes that an NDA prevents individuals from exploring legal options. NDA is necessary to prevent company secrets but if it violates your human rights.

There are factors that could lead a court to find a Non- Disclosure agreement unenforceable include- 

  • Non-disclosure agreements are determined to be unenforceable are where they are not limited in duration or scope. If the NDA is for a lifetime it should not be a threat to the way of life of the concerned. 
  • Courts will refuse to enforce a contract where the underlying purpose is against the law.
  • When a confidentiality agreement includes provisions that are so one-sided and self-serving as to be extremely unjust, it may not be enforceable on the grounds of unconscionability.
  •  Even if otherwise enforceable, a court will not force you to comply with a non-disclosure agreement that creates a risk to public health and safety if you perform it.
  • When unreasonable, excessive, or impractical in its demands, and are violating basic human rights, an employer’s non-disclosure agreement may not be enforced by courts.

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It is clear that a Non Disclosure agreement is legally binding and is important for protecting the confidential information of the concerned parties. But it is also important to understand and read clauses carefully before signing an NDA. Also, one needs to see that the NDA agreement is in any way not against him/her and also should make sure that there is always an alternative legal remedy available to the entering party.

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