Non-disclosure agreements (NDAs) help businesses protect confidential information, trade secrets, and valuable commercial relationships. Whether you are an employee, contractor, business partner, or entrepreneur, signing an NDA can create legal obligations concerning how certain information may be used and shared.
But what happens if confidential information is disclosed accidentally or an NDA is intentionally violated? Understanding the potential consequences and appropriate next steps can help businesses and individuals limit their legal exposure.
What Is a Non-Disclosure Agreement?
A non-disclosure agreement is a contract designed to restrict the disclosure or use of specified confidential information.
NDAs are commonly used to protect:
- Trade secrets and proprietary business processes.
- Customer lists and financial information.
- Product designs and unreleased technology.
- Marketing strategies and business plans.
- Information exchanged during mergers, acquisitions, or business negotiations.
NDAs may be unilateral, protecting information disclosed by one party, or mutual, protecting information exchanged by both parties.
The agreement should identify what constitutes confidential information, how it may be used, and how long confidentiality obligations remain in effect.
What Happens If You Breach an NDA?
An NDA breach occurs when a party violates the agreement’s confidentiality or permitted-use provisions. This may involve sharing protected information with an unauthorized person, publishing confidential materials, or using proprietary information for personal or competitive advantage.
The consequences depend on the agreement, applicable law, and the circumstances surrounding the disclosure.
Financial Damages
A party harmed by an NDA breach may seek monetary damages for losses caused by the unauthorized disclosure.
For example, if a former employee shares confidential pricing information with a competitor, the employer may pursue compensation for resulting financial harm.
Some NDAs also contain liquidated damages provisions specifying an amount payable upon breach. The enforceability of a liquidated damages provision depends on applicable law, and a provision may be unenforceable if it operates as an impermissible penalty rather than a permissible measure of damages.
Injunctive Relief
A court may issue an injunction requiring the breaching party to stop disclosing or using confidential information.
In some circumstances, a business may seek emergency relief to prevent further dissemination of sensitive materials.
Trade Secret Claims
If the disclosed information qualifies as a trade secret, the injured party may have additional remedies under state or federal law.
The federal Defend Trade Secrets Act allows qualifying trade secret owners to pursue civil claims involving misappropriation, including potential damages and injunctive relief.
Not every NDA breach constitutes trade secret misappropriation. The information must satisfy the applicable legal definition and other statutory requirements.
What Should You Do If You Accidentally Breach an NDA?
An accidental disclosure does not necessarily eliminate contractual liability. However, acting promptly may help limit the damage and demonstrate good faith.
If you believe you have breached an NDA, consider the following steps:
- Stop further disclosure. Avoid sharing or using the information until you understand your obligations.
- Review the agreement. Identify the relevant confidentiality provisions, permitted disclosures, and notification requirements.
- Preserve relevant evidence. Retain communications and records showing what was disclosed, when, and to whom.
- Contain the disclosure. Where appropriate, request that unauthorized recipients refrain from using or distributing the information.
- Consult an attorney. Legal counsel can help assess potential liability and determine whether notification or other corrective action is required.
Avoid deleting records or making admissions about liability before obtaining legal guidance.
When Can Confidential Information Be Disclosed Without Breaching an NDA?
Not every disclosure of confidential information violates an NDA. Many agreements contain exceptions permitting disclosure under specific circumstances.
Common exceptions include information that:
- Becomes publicly available without a breach.
- Was already lawfully known to the receiving party.
- Is independently developed without using protected information.
- Is lawfully obtained from an unrestricted third party.
- Is disclosed with the information owner’s authorization.
Some agreements also address disclosures required by law, subpoena, or court order. These provisions may require advance notice, to the extent legally permitted, or reasonable efforts to limit the disclosure or obtain confidential treatment. Any such requirements should be drafted so they do not restrict or impede legally protected whistleblower communications.
Are Whistleblower Disclosures Protected?
NDAs generally cannot override statutory whistleblower protections.
For example, the Defend Trade Secrets Act provides immunity from certain trade secret liability for qualifying confidential disclosures to government officials or attorneys made to report or investigate suspected legal violations. The DTSA also requires employers to provide notice of this immunity in agreements governing confidential information or trade secrets with employees, including contractors and consultants, or to cross-reference an appropriate policy containing that notice.
Additionally, SEC Rule 21F-17 prohibits actions that impede individuals from communicating directly with the SEC about possible securities law violations, including certain attempts to enforce confidentiality agreements.
Other federal and state laws may also limit the enforceability of confidentiality provisions in particular contexts, including certain workplace agreements involving claims of sexual harassment or sexual assault. The scope of these protections depends on the circumstances. Individuals should seek legal guidance before assuming a particular disclosure is protected.
How Can Romano Law Help With NDA Disputes?
An NDA breach can create significant legal and financial consequences. Whether you are seeking to enforce a confidentiality agreement or responding to allegations of unauthorized disclosure, early legal guidance can help protect your interests.
Romano Law assists businesses and individuals with drafting, reviewing, negotiating, and enforcing non-disclosure agreements. Our attorneys can evaluate potential breaches, assess available remedies, and help resolve confidentiality disputes through negotiation or litigation.
Contact Romano Law today to discuss your NDA concerns and explore your legal options.
Contributions to this blog by Kennedy McKinney.
