A non-disclosure agreement (NDA), also called a confidentiality agreement, is a legal contract meant to prevent employees from sharing confidential company information. NDAs protect trade secrets, customer lists, proprietary processes, and other sensitive business information both during and after employment.
How Widespread Are NDAs?
Non-disclosure agreements have become standard practice across American businesses. Research indicates that between 33% and 57% of U.S. workers are bound by some form of NDA or similar confidentiality mechanism, according to data cited in Wikipedia. Even more striking, approximately 70% to 88% of American companies now require employees to sign NDAs, according to research from Syracuse University and the University of Maryland.
The use of NDAs has more than doubled over the past 15 years, with business owners reporting that "every single business relationship" now involves an NDA where previously they were rare, according to interviews reported by CNBC.
For multi-location businesses in restaurants, retail, and service industries, NDAs serve an important function: protecting recipes, operational procedures, customer databases, supplier relationships, pricing strategies, and expansion plans from being shared with competitors.
What Information Can NDAs Protect?
Well-crafted NDAs protect specific types of confidential information:
Trade secrets: Proprietary recipes, formulas, techniques, or processes that give your business a competitive advantage. Examples include a restaurant's signature sauce recipe, a cleaning company's proprietary product formulations, or a salon's custom treatment protocols.
Customer information: Customer lists, contact details, purchase histories, preferences, and relationship details that took time and resources to develop.
Financial data: Profit margins, pricing strategies, cost structures, sales figures, and financial projections not available to the public.
Business strategies: Expansion plans, marketing strategies, vendor negotiations, and operational improvements under development.
Proprietary processes: Training materials, operational procedures, workflow systems, and scheduling methodologies that optimize your business operations.
What NDAs Cannot Protect
Federal and state laws place important limitations on what NDAs can restrict, ensuring employees retain certain fundamental rights:
Publicly available information: NDAs cannot prevent employees from discussing information that's already in the public domain or becomes public through no fault of the employee.
Skills and general knowledge: Employees can use the general skills, knowledge, and experience they gained during employment. NDAs cannot prevent someone from using their general expertise in future work.
Information known before employment: If an employee already possessed certain knowledge before joining your company, the NDA cannot restrict their use of that pre-existing knowledge.
Whistleblowing and illegal activity: NDAs absolutely cannot prevent employees from reporting illegal activities, safety violations, discrimination, harassment, or other unlawful conduct to authorities or internally.
Sexual harassment and assault: The federal Speak Out Act of 2022 prohibits NDAs from being enforced against victims of sexual harassment or assault. Multiple states including California, Arizona, Pennsylvania, and Rhode Island have enacted similar or broader protections.
Protected labor activity: Under National Labor Relations Board rulings, NDAs cannot prevent employees from discussing wages, hours, working conditions, or other topics protected by federal labor law, as reported by The Salt Lake Tribune.
Types of NDAs
Non-disclosure agreements typically fall into two categories:
Unilateral (one-way) NDAs: One party agrees not to disclose confidential information shared by the other party. This is the standard employee NDA, where the employee agrees to protect the employer's confidential information. Most employment relationships use unilateral NDAs.
Mutual (two-way) NDAs: Both parties agree not to share each other's confidential information. These are common in business partnerships, vendor relationships, or when companies collaborate on projects. For example, if you're partnering with another restaurant to create a joint catering menu, a mutual NDA protects both businesses' proprietary information.
Key Elements of Enforceable NDAs
For an NDA to hold up in court, it must meet several legal requirements:
Clear definition of confidential information: The agreement must specifically define what information is considered confidential. Vague language like "all information learned during employment" is often unenforceable. Research analyzing 446 NDAs in federal litigation found that 96% failed to exempt employee skills and knowledge, and 90% had no time limit. Those factors that can render NDAs unenforceable, according to U.S. News.
Reasonable duration: While trade secrets can be protected indefinitely (as long as they remain secret), other confidential business information typically needs a specific time limit. Most courts consider 1 to 5 years reasonable for standard business information, depending on the industry and type of data.
Adequate consideration: Employees must receive something of value in exchange for signing an NDA. For new hires, the job offer itself typically constitutes consideration. For existing employees, you may need to provide additional compensation, a promotion, or access to confidential information necessary for an expanded role.
Voluntary agreement: Both parties must enter into the NDA voluntarily with clear understanding of its terms. Coercion, deception, or presenting the agreement under pressure can invalidate it.
Reasonable scope: The NDA's restrictions must be proportional to the legitimate business interests being protected. Overly broad agreements that effectively prevent employees from ever working in their field are likely unenforceable.
NDAs vs. Non-Competes: Understanding the Difference
While sometimes confused, NDAs and non-compete agreements serve different purposes and face different legal standards:
NDAs focus on information: They prevent sharing or using specific confidential information but don't restrict where someone can work. An employee can join a competitor as long as they don't disclose or use your protected information.
Non-competes restrict employment: They prevent employees from working for competitors or starting competing businesses for a specified period, regardless of whether confidential information is involved.
Courts treat them differently: NDAs generally receive more favorable treatment in courts because they protect information rather than restricting a person's right to earn a living. Even states like California that ban non-competes still enforce reasonable NDAs.
They're often used together: Research shows a 40% to 50% likelihood that employers requiring NDAs also require non-competes or other restrictive agreements, according to the U.S. News report.
Common Enforceability Problems
Many NDAs fail in court due to preventable drafting mistakes:
Overly broad language: Agreements that attempt to cover "all information" or "any knowledge gained during employment" without specific limitations are difficult to enforce. Courts need clear boundaries about what's protected and what's not.
No time limits: While trade secrets don't need expiration dates, other business information does. NDAs with no duration at all raise red flags for courts.
Failing to identify specific trade secrets: Simply claiming "trade secrets" without identifying what they actually are weakens your position. Your NDA should reference specific categories of protected information.
Attempting to silence illegal activity: Any NDA provision that could be interpreted as preventing disclosure of illegal conduct, safety violations, or protected labor activity is not only unenforceable but may expose your business to additional liability.
Poor recordkeeping: Even valid NDAs become difficult to enforce if you can't demonstrate that you treated the information as confidential. If you didn't restrict access to "confidential" information or allowed it to circulate freely, courts may find you failed to protect it adequately.
Best Practices for Multi-Location Businesses
For restaurant chains, retail operations, and service businesses operating multiple locations:
1. Use clear, specific language: Define exactly what information is confidential with concrete examples relevant to your industry. Instead of "confidential information," specify "customer databases, proprietary recipes, pricing matrices, vendor contracts, and expansion location analyses."
2. Implement practical safeguards: Having an NDA means little if you don't actually treat information as confidential. Use password protection, limit access to sensitive data, mark confidential documents clearly, and train managers on information security.
3. Leverage technology appropriately: Store sensitive operational procedures, recipes, or customer data where only authorized team members can access them, demonstrating your commitment to confidentiality.
4. Present NDAs at appropriate times: Provide NDAs during the hiring process or when an employee's role changes to require access to confidential information—not after they've already been exposed to sensitive data.
5. Provide time to review: Allow employees adequate time to read and understand the NDA. Ideally, mention in job postings that the position requires an NDA, include it with the offer letter, and allow at least several days for review before the start date.
6. Train managers consistently: Ensure managers understand what information is confidential, how to handle it properly, and the importance of NDAs. Inconsistent treatment undermines enforceability.
7. Conduct exit interviews: When employees leave, conduct structured exit interviews that remind them of their ongoing NDA obligations, document what information they had access to, and ensure they return all company property and delete any company information from personal devices.
When to Enforce an NDA
While having NDAs in place provides important legal protection, enforcement should be strategic:
Document the breach: If you suspect an NDA violation, gather evidence showing what confidential information was disclosed, to whom, when, and what harm resulted or could result.
Start with cease and desist: Most situations begin with a letter from your attorney to the former employee and potentially their new employer, demanding they stop using your confidential information.
Consider the costs: NDA enforcement litigation is expensive and time-consuming. Weigh the actual harm caused against the costs of legal action.
Act quickly: The longer you wait to enforce an NDA, the harder it becomes. Delays can be interpreted as waiving your rights or evidence that the information wasn't truly confidential.
Making NDAs Part of Your Culture
The most effective NDAs are part of a broader culture of confidentiality:
Explain why it matters: Help employees understand that protecting customer information, recipes, and business strategies is meant to keep the business competitive and their jobs secure.
Lead by example: Ensure managers and owners model confidentiality themselves. If leadership discusses sensitive information carelessly, employees won't take NDAs seriously.
Make it practical, not paranoid: Create an environment where confidentiality is expected but doesn't create fear or stifle necessary communication. Employees should understand what's confidential and what they're free to discuss.
The Bottom Line
Non-disclosure agreements remain one of the most effective and legally sound ways to protect your business's confidential information. Unlike non-compete agreements, properly drafted NDAs continue to receive favorable treatment in courts across all states.
For multi-location restaurant, retail, and service businesses, NDAs protect what truly matters: the recipes, customer relationships, operational systems, and strategic plans that give you competitive advantage. By clearly defining what's confidential, implementing practical safeguards, and treating confidential information consistently, you create enforceable protection that survives legal challenges.
Work with an employment attorney to develop NDAs tailored to your industry, the specific information you need to protect, and the jurisdictions where you operate. A well-crafted NDA is an investment in protecting the business assets you've worked hard to build.
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