NDA basics: mutual vs one-way and what to include

What an NDA does

A non-disclosure agreement, or NDA, is a contract where one or both sides agree to keep certain information private and to use it only for a stated purpose. Businesses use NDAs before sharing plans, customer lists, code or financial details with a partner, contractor or investor.

An NDA does not protect everything. Information that is already public, that the other side already knew, that they developed on their own, or that they received lawfully from someone else is usually outside it.

Mutual or one-way

Use a mutual NDA when both sides will share confidential information, such as two companies exploring a partnership. Each side promises to protect what it receives.

Use a one-way NDA when only one side shares, such as a company briefing a contractor. Only the receiving side takes on the duty. A one-way NDA is shorter, but a mutual one can feel fairer and is often easier to get signed.

Key clauses

• Definition: what counts as confidential. Specific beats vague, and an endless definition is harder to enforce.
• Purpose: why the information is being shared. A narrow purpose makes the agreement stronger.
• Obligations: use the information only for the purpose, protect it with reasonable care and share it only with people who need it.
• Exclusions: public information, information already known, independently developed information and information received from a third party.
• Duration: how long the sharing period lasts and how long the secrecy duty continues after it.
• Return or destruction: what happens to the materials when the discussions end.
• Governing law and where disputes are resolved.

Limits on confidentiality agreements

An NDA cannot stop someone from reporting suspected violations of law to a government agency. Federal trade secret law also gives employers a notice requirement in agreements with employees and contractors if they want to claim certain remedies, and several states restrict confidentiality terms about harassment, discrimination or unlawful conduct.

An NDA is also not a non-compete. It limits what someone can disclose, not where they can work. Restrictions on working for a competitor are a separate subject with its own state rules.

NDAs used to settle claims, or between a business and a consumer, raise different issues. Those are better handled with professional advice.

Practical tips

• Sign before you share anything.
• Share only what the other side needs for the purpose.
• Mark sensitive documents as confidential and keep a note of what you shared and when.
• Keep a signed copy where you can find it.

Electronic signatures are generally valid for business NDAs under federal and state e-signature laws, which makes signing across distances simple.