When Should Your Business Use an NDA? 9 Powerful Ways to Avoid Costly Mistakes

A business should use a nondisclosure agreement (NDA) whenever it needs to share confidential business information with someone who is not authorized to disclose or use that information for unrelated purposes. Common situations include hiring employees, working with independent contractors, discussing potential partnerships, negotiating with investors, sharing information with vendors, and exploring a business sale.

An NDA establishes contractual confidentiality obligations before sensitive information is disclosed. It can identify what information must remain confidential, explain how the receiving party may use it, restrict unauthorized disclosure, and establish what happens when the business relationship ends.

For North Carolina businesses, nondisclosure agreements can also complement legal protections for trade secrets under the North Carolina Trade Secrets Protection Act. However, signing an NDA does not automatically make every piece of business information a legally protected trade secret. The nature of the information and the steps taken to maintain its secrecy still matter.

The practical question is not whether every business needs an NDA for every conversation. It is whether the information being shared could create a meaningful business risk if another person disclosed, copied, misused, or distributed it.

An NDA should be prepared before the confidential information is disclosed whenever practical. Asking someone to sign an agreement after they have already received sensitive information can create additional legal and practical complications.

What Is a Nondisclosure Agreement?

A nondisclosure agreement is a legally binding contract in which one or more parties agree to protect specified confidential information from unauthorized disclosure or use.

It is also commonly called a confidentiality agreement or confidential disclosure agreement.

The agreement generally identifies:

1. The parties involved.
2. The information considered confidential.
3. The permitted purpose for accessing or using that information.
4. The restrictions on disclosure.
5. The circumstances in which disclosure may be permitted.
6. The duration of the confidentiality obligations.
7. The steps required when the relationship ends.
8. The remedies that may be available if a party breaches the agreement.

For example, imagine a Raleigh-based software company developing a new customer management platform. Before hiring an independent developer, the company may need to share source code, technical documentation, product specifications, and information about its future development plans.

The company could use an NDA to establish that the developer may access the information only for the agreed project and cannot disclose it to unauthorized individuals or use it for unrelated purposes.

Without a clear agreement, the company may face uncertainty about the developer’s confidentiality obligations, particularly if the parties later disagree about how the information may be used.

An NDA helps establish expectations before the working relationship begins.

9 Situations When Your Business Should Use a Nondisclosure Agreement

Not every business interaction requires a separate confidentiality agreement. However, certain situations create a greater need for written protection.

The following are nine common situations in which an NDA may be appropriate.

1. When Hiring Employees Who Will Access Confidential Information

Employees may gain access to information that is not available to the general public.

Depending on their positions, they may handle:

• Customer and client lists.
• Internal pricing structures.
• Financial statements.
• Marketing strategies.
• Sales forecasts.
• Supplier agreements.
• Product development information.
• Internal operating procedures.
• Proprietary software and technology.
• Business expansion plans.

A confidentiality agreement can explain which information employees must protect and how they may use it during and after their employment.

For example, a company hiring a sales manager may provide access to customer relationships, account histories, pricing arrangements, and future sales plans.

An employment-related NDA can establish that the employee may use this information to perform assigned responsibilities but may not disclose it to unauthorized third parties or use it for unrelated purposes.

When should the agreement be signed?

Ideally, the confidentiality obligations should be established before the employee receives access to sensitive information. Businesses often incorporate confidentiality provisions into employment agreements, employee handbooks, or separate confidentiality agreements.

However, businesses should avoid drafting confidentiality provisions so broadly that they effectively prevent former employees from working in their professions or using their general knowledge, experience, and skills.

North Carolina courts have recognized that a nondisclosure provision designed to prevent competition rather than protect legitimate confidential business information may be treated differently from an ordinary confidentiality provision.

The North Carolina Business Court discussed this distinction in its analysis of employment-related nondisclosure provisions in 2025 NCBC 10.

The purpose of the agreement should be protecting legitimate business information, not creating an unnecessary restriction on an employee’s future employment.

2. When Working With Independent Contractors and Consultants

Independent contractors frequently receive access to business information while providing professional services.

Examples include:

• Web developers.
• Graphic designers.
• Marketing consultants.
• Accountants.
• Business consultants.
• Software engineers.
• IT support providers.
• Product designers.
• Virtual assistants.
• Outside management consultants.

Even when contractors are not employees, they may receive information that the business wants to keep confidential.

Consider a company hiring a marketing consultant to develop a new advertising campaign. The consultant may need access to customer demographics, marketing budgets, sales performance, campaign plans, and information about upcoming product launches.

An NDA can restrict the consultant’s use and disclosure of that information to the agreed engagement.

A well-drafted contractor agreement may also address related issues, including:

• Ownership of work product.
• Intellectual property rights.
• Access to company systems.
• Data security responsibilities.
• Return or destruction of business records.
• Permitted subcontracting.
• Confidentiality obligations after the project ends.

Why is a separate NDA sometimes useful?

A general services agreement may describe the contractor’s responsibilities without adequately explaining how confidential information must be handled.

A separate NDA can provide additional detail, particularly when the contractor will receive access to sensitive technical, financial, or customer information.

However, the NDA should be coordinated with the services agreement. Conflicting provisions can create uncertainty about the contractor’s responsibilities.

3. Before Discussing a Potential Business Partnership

Business owners often share sensitive information when exploring partnerships or joint ventures.

Before agreeing to work together, prospective partners may discuss:

• Business models.
• Revenue projections.
• Operating costs.
• Customer acquisition strategies.
• Supplier relationships.
• Proposed investments.
• Product development plans.
• Market opportunities.
• Expansion strategies.

These discussions can involve substantial disclosure before the parties have decided whether to enter into a formal business relationship.

For example, two North Carolina companies may be considering a joint venture to develop a new product. One company has developed the technology, while the other has established distribution relationships.

Both companies may need to share commercially sensitive information to determine whether the proposed arrangement is financially and operationally practical.

A mutual NDA may help protect information disclosed by either company during those discussions.

The agreement can establish that each party must protect the other party’s confidential information and use it only to evaluate or pursue the proposed relationship.

What should business owners consider?

An NDA should not be treated as a replacement for a partnership agreement, operating agreement, or joint venture agreement.

Those documents address broader matters such as ownership, contributions, decision-making authority, responsibilities, profits, management, and dispute resolution.

An NDA addresses confidentiality. It does not automatically establish who owns a jointly developed product or how revenue will be divided.

4. Before Sharing Information With Potential Investors

Businesses seeking funding may need to disclose sensitive financial and operational information to prospective investors.

These disclosures can include:

• Revenue and profit figures.
• Financial projections.
• Business plans.
• Customer acquisition costs.
• Growth strategies.
• Product roadmaps.
• Proprietary technology.
• Market research.
• Internal performance reports.
• Information about existing investors.

An NDA may be appropriate when a business shares detailed, nonpublic information during investment discussions.

For example, a startup developing a specialized software platform may need to demonstrate its technology and provide detailed financial projections to a potential investor.

The startup may want an agreement restricting the investor’s use and disclosure of confidential information.

However, businesses should understand that not every investor will agree to sign an NDA before reviewing investment opportunities.

Some venture capital firms and professional investors routinely evaluate competing businesses and may be unable to accept confidentiality restrictions for every initial conversation.

A business should consider:

• Whether the information is genuinely sensitive.
• Whether a less detailed presentation would be sufficient.
• Whether the investor is an individual or an established investment organization.
• Whether confidential information needs to be disclosed at the initial stage.
• Whether the parties are entering a more detailed due diligence process.

A business can often begin with a nonconfidential overview and disclose more sensitive materials only when there is a legitimate need.

5. When Working With Vendors and Suppliers

Vendors and suppliers may receive access to information about a company’s operations, customers, purchasing arrangements, and business plans.

For example, a manufacturer may provide a supplier with product specifications, material requirements, production schedules, and pricing information.

A technology company may give an outside IT provider access to internal systems, software configurations, and security documentation.

In these situations, an NDA can help establish restrictions on how the vendor may use and disclose the information.

A vendor confidentiality agreement may address:

• Confidential information accessible during the engagement.
• Authorized business purposes.
• Restrictions on sharing information with subcontractors.
• Security and access requirements.
• Reporting obligations following a security incident.
• Return or deletion of confidential materials.
• Continuing confidentiality responsibilities.

Businesses should also evaluate whether the NDA adequately addresses information security and privacy obligations.

An NDA does not automatically satisfy every applicable data protection, cybersecurity, or industry-specific requirement.

For example, a vendor processing sensitive personal information may need additional contractual provisions addressing the handling, security, and permitted use of that information.

The appropriate documents depend on the information involved and the nature of the services.

6. Before Selling or Acquiring a Business

A business sale or acquisition often involves extensive financial, operational, and commercial disclosures.

Potential buyers may request access to:

• Tax returns.
• Financial statements.
• Customer records.
• Employee information.
• Vendor contracts.
• Intellectual property records.
• Sales reports.
• Business operating procedures.
• Existing litigation information.
• Strategic plans.

This information is typically reviewed during due diligence.

A seller may want a potential buyer to sign an NDA before accessing confidential company records.

The agreement can restrict the buyer’s use of the information to evaluating the proposed transaction and prohibit unauthorized disclosure.

It may also address the return or destruction of confidential documents if the transaction does not proceed.

For example, a business owner in Wake County may receive an acquisition proposal from a competitor. Before providing detailed financial records and customer information, the owner may require the prospective buyer to agree to confidentiality restrictions.

This can help protect the business if negotiations end without a completed sale.

Important considerations during acquisition discussions

An NDA should be coordinated with the letter of intent, purchase agreement, and due diligence arrangements.

The parties should consider:

• Who may access the information.
• Whether outside accountants, attorneys, and financial advisers may review it.
• How information may be stored and shared.
• Whether employees and customers may be contacted.
• What happens if negotiations terminate.
• Whether information must be returned or destroyed.
• Whether any information must be retained for legal or regulatory reasons.

An NDA is particularly useful during preliminary negotiations, but it should not be the only document governing a complex acquisition.

7. When Developing a New Product, Technology, or Business Process

Product development often involves information that gives a business a competitive advantage.

This may include:

• Product formulas.
• Technical designs.
• Engineering specifications.
• Software source code.
• Manufacturing processes.
• Product prototypes.
• Research findings.
• Testing results.
• Product roadmaps.
• Proprietary algorithms.

A business may need to disclose these materials to designers, engineers, manufacturers, research partners, or consultants.

An NDA can establish that recipients may use the information only for the authorized development project.

For example, a company developing a new consumer product may provide a manufacturing contractor with a prototype and technical specifications.

The company may want to prevent the contractor from distributing the design to another manufacturer or using the information for an unrelated project.

However, confidentiality and intellectual property ownership are separate legal issues.

An NDA may restrict unauthorized disclosure, but it does not automatically transfer ownership of an invention, design, software program, or other intellectual property.

Businesses should consider whether additional agreements are necessary to address:

• Invention assignments.
• Copyright ownership.
• Patent rights.
• Software ownership.
• Licensing arrangements.
• Work-for-hire provisions where legally appropriate.
• Ownership of improvements and modifications.

When developing valuable intellectual property, businesses should coordinate confidentiality agreements with their broader intellectual property protection strategy.

8. Before Sharing Customer Lists, Pricing, or Business Strategies

Customer relationships and pricing arrangements can be important business assets.

Companies may maintain confidential information about:

• Customer contact details.
• Purchase histories.
• Customer preferences.
• Negotiated pricing.
• Supplier discounts.
• Sales performance.
• Marketing strategies.
• Account management procedures.
• Contract renewal schedules.

Sharing this information with an outside consultant, potential partner, or service provider may create commercial risks.

For example, a company may hire a consultant to evaluate its sales operations. The consultant may need access to customer information and pricing records to identify opportunities for improvement.

An NDA can establish that the information may be used only for the agreed engagement.

However, not every customer list or pricing document automatically qualifies as a trade secret.

Under North Carolina law, information generally must derive independent actual or potential commercial value from not being generally known or readily ascertainable and must be subject to reasonable efforts to maintain its secrecy to qualify as a statutory trade secret.

The definition is provided under North Carolina General Statutes § 66-152.

A company should therefore consider both its contractual protections and the actual steps it takes to protect sensitive business information.

9. When Your Business Receives Confidential Information From Another Company

An NDA is not only useful when your business discloses confidential information.

Your company may also receive sensitive information from another organization.

For example, a supplier may share its manufacturing process, a prospective acquisition target may provide financial records, or a potential partner may disclose proprietary technology.

In these situations, your business may have confidentiality obligations as the receiving party.

A mutual NDA can establish reciprocal responsibilities when both parties expect to exchange confidential information.

Before accepting confidential information, businesses should understand:

• What information is covered.
• What uses are permitted.
• Who may access the information.
• How long confidentiality obligations continue.
• Whether the information may be disclosed to professional advisers.
• What happens if the information is independently developed.
• What happens if the information later becomes public through lawful means.

This is particularly important when a business works with multiple companies in the same industry.

Accepting confidential information without understanding the restrictions can create contractual obligations that affect future business decisions.

What Types of Information Can an NDA Protect?

A business NDA should identify the information that the parties intend to protect.

The agreement should be specific enough to establish meaningful confidentiality obligations without attempting to classify every piece of information as confidential.

Common categories include the following.

1. Financial Information

Examples include:

• Revenue reports.
• Profit margins.
• Financial forecasts.
• Business budgets.
• Investment plans.
• Banking information.
• Internal financial statements.

2. Customer and Supplier Information

Examples include:

• Customer lists.
• Customer purchasing histories.
• Supplier pricing.
• Vendor agreements.
• Negotiated discounts.
• Nonpublic customer relationship information.

3. Technical Information

Examples include:

• Software source code.
• Product specifications.
• Engineering designs.
• Manufacturing processes.
• Technical documentation.
• Proprietary algorithms.

4. Business and Marketing Strategies

Examples include:

• Expansion plans.
• Marketing campaigns.
• Sales strategies.
• Product launch schedules.
• Market research.
• Competitive analysis.

5. Intellectual Property and Product Development

Examples include:

• Unreleased product designs.
• Inventions.
• Research findings.
• Product prototypes.
• Confidential creative materials.
• Unpublished technical developments.

The NDA should explain which categories are covered and, where appropriate, identify specific documents, projects, or disclosures.

What Information Should Not Automatically Be Treated as Confidential?

An NDA should not automatically treat every piece of information as confidential without considering its nature and circumstances.

Most well-drafted agreements include exceptions for certain information.

These commonly include:

Publicly available information: Information already available to the public through lawful means generally should not become confidential simply because it appears in an NDA.

Previously known information: Information the receiving party already lawfully possessed before receiving it from the disclosing party may be excluded.

Independently developed information: Information developed independently without using the disclosing party’s confidential materials may be excluded.

Lawfully received third-party information: Information obtained from another source without a confidentiality obligation may fall outside the agreement, depending on its terms.

Legally required disclosures: An agreement should address situations where disclosure is required by law, regulation, court order, or other legal process.

These exceptions help make confidentiality obligations more practical and prevent an NDA from claiming control over information that the disclosing party does not legitimately own or have the right to restrict.

The specific wording matters. For example, an agreement may require the receiving party to provide notice before making a legally compelled disclosure when doing so is legally permitted.

Unilateral vs. Mutual Nondisclosure Agreements: Which Should You Use?

Businesses generally encounter two common NDA structures: unilateral and mutual agreements.

The appropriate option depends on who will disclose confidential information and whether both parties need protection.

Unilateral Nondisclosure Agreement

A unilateral NDA protects information disclosed by one party to another.

The receiving party agrees to protect the disclosing party’s confidential information.

For example, a company hiring a freelance developer may disclose confidential technical documentation while the developer does not need to provide comparable confidential business information in return.

A unilateral NDA may be appropriate when:

• One business shares confidential information with a contractor.
• An employer provides internal information to an employee.
• A company provides product specifications to a manufacturer.
• A business shares confidential materials with a consultant.
• A seller discloses business information to a prospective buyer.

Mutual Nondisclosure Agreement

A mutual NDA protects confidential information disclosed by both parties.

Each party agrees to protect the other party’s covered information.

For example, two businesses evaluating a joint venture may exchange financial information, customer data, operational strategies, and proprietary technology.

A mutual agreement can establish confidentiality responsibilities for both organizations.

A mutual NDA may be appropriate when:

• Two companies are exploring a partnership.
• Businesses are negotiating a joint venture.
• Both parties are evaluating a commercial transaction.
• Companies are discussing a collaborative product.
• Two organizations are exchanging confidential technical information.

Comparison: Unilateral vs. Mutual NDA

Consideration	Unilateral NDA	Mutual NDA
Confidential information	Primarily one party’s information	Both parties’ information
Obligations	Receiving party has confidentiality duties	Both parties have confidentiality duties
Common use	Contractor or vendor engagement	Partnership or joint venture discussions
Disclosure	One-way	Two-way
Drafting focus	Protecting the disclosing party	Establishing reciprocal obligations

Neither agreement is automatically more effective. The right structure depends on the actual flow of information.

A business should avoid using a unilateral agreement when both parties expect to exchange confidential information and need reciprocal protection.

What Should a Business NDA Include?

An NDA should reflect the business relationship and the specific information being disclosed.

Although agreements differ, several provisions deserve careful attention.

1. Identification of the Parties

The agreement should identify the correct legal parties.

For example, if an LLC is sharing confidential information, the agreement should generally identify the LLC rather than simply naming its owner or using an informal business name.

The parties should also determine whether affiliates, subsidiaries, employees, agents, or authorized representatives are covered.

2. Definition of Confidential Information

The definition should describe what information is protected.

Depending on the transaction, it may cover written, electronic, verbal, visual, technical, and other forms of disclosure.

For example, a software development NDA may specifically identify source code, technical documentation, product designs, and development plans.

An agreement should not rely solely on vague language that creates uncertainty about the parties’ responsibilities.

3. Purpose of Disclosure

The NDA should explain why the receiving party is permitted to access the information.

For example:

• Evaluating a proposed investment.
• Performing consulting services.
• Developing a product.
• Negotiating a business partnership.
• Providing contracted services.
• Evaluating a possible acquisition.

A defined purpose helps establish the boundaries of permitted use.

4. Confidentiality Obligations

The agreement should explain what the receiving party must do to protect the information.

Possible obligations include:

• Not disclosing information to unauthorized individuals.
• Using information only for the agreed purpose.
• Limiting access to authorized personnel.
• Taking reasonable steps to safeguard confidential materials.
• Avoiding unauthorized copying or distribution.
• Not using confidential information for personal or competing business purposes.

The appropriate obligations depend on the type of information and the recipient’s role.

5. Permitted Disclosures

Some disclosures may be necessary for the business relationship.

For example, a company may need to allow its employees, accountants, attorneys, or professional advisers to review certain confidential information.

The agreement should identify who may receive access and under what conditions.

It may require those individuals to be subject to confidentiality obligations of their own.

6. Duration of the Agreement

An NDA should specify how long the agreement lasts and how long confidentiality obligations continue.

These are related but separate questions.

For example, an NDA may apply during a six-month consulting engagement while certain confidentiality obligations continue after the project ends.

Different categories of information may also justify different confidentiality periods.

Trade secrets may require protection for as long as they continue to qualify as trade secrets under applicable law, while other confidential business information may be subject to a defined contractual period.

Businesses should avoid assuming that every NDA should use the same duration.

7. Return or Destruction of Information

The agreement should explain what happens to confidential materials when the business relationship ends or when the disclosing party requests their return.

Possible requirements include:

• Returning original documents.
• Deleting electronic copies.
• Destroying unauthorized copies.
• Removing access to company systems.
• Confirming completion of required deletion or destruction.

The agreement should also consider legitimate record-retention obligations and routine backup systems where appropriate.

8. Remedies for Breach

The NDA may explain the remedies that a party can pursue if confidential information is improperly disclosed or used.

Depending on the circumstances and applicable law, potential remedies may include:

• Monetary damages.
• Injunctive relief.
• Other available contractual or statutory remedies.
• Recovery of certain legal expenses where authorized by law or agreement.

An NDA cannot guarantee that a court will grant an injunction or award a particular amount of damages.

The availability of relief depends on the agreement, evidence, applicable law, and circumstances.

9. Governing Law and Dispute Resolution

The agreement should identify the governing law and address where and how disputes may be handled.

This is particularly important when the parties operate in different states.

For example, a North Carolina company may enter into an NDA with a Washington, D.C.-based consultant.

The agreement should be reviewed to determine whether the selected governing law and dispute forum are appropriate and legally supportable.

A choice-of-law provision should not be assumed to resolve every jurisdictional question.

10. Legally Protected Disclosures and Reporting Rights

An NDA should not attempt to prevent disclosures that the law protects or requires.

For example, federal trade secret law provides certain whistleblower protections.

Under 18 U.S.C. § 1833(b), an individual may have immunity from federal and state trade secret liability for qualifying confidential disclosures to government officials or an attorney made solely to report or investigate a suspected violation of law.

The law also addresses certain disclosures made in legal proceedings under seal. U.S. Code

Businesses should ensure their agreements do not improperly interfere with legally protected reporting and disclosure rights.

What Is the Difference Between an NDA and Trade Secret Protection?

An NDA and trade secret law can work together, but they are not the same thing.

An NDA is a contract that establishes confidentiality obligations between parties.

Trade secret law provides statutory protection for qualifying information when the applicable legal requirements are met.

In North Carolina, the Trade Secrets Protection Act is found in Article 24 of Chapter 66 of the North Carolina General Statutes.

Under N.C. Gen. Stat. § 66-152, a trade secret generally includes business or technical information that:

1. Derives actual or potential commercial value from not being generally known or readily ascertainable by others who could obtain economic value from its disclosure or use; and
2. Is subject to reasonable efforts under the circumstances to maintain its secrecy.

This means a business cannot simply label information as a trade secret and automatically receive statutory protection.

The information must satisfy the applicable legal definition.

How an NDA Supports Trade Secret Protection

A confidentiality agreement may help demonstrate that a business takes steps to protect sensitive information.

For example, a company may:

• Require employees with access to proprietary information to sign confidentiality agreements.
• Restrict access to sensitive technical documents.
• Use password-protected systems.
• Limit access to customer information.
• Establish internal confidentiality procedures.
• Require contractors to follow confidentiality obligations.

These steps may contribute to a broader effort to maintain secrecy.

However, an NDA alone does not establish that all information covered by the contract qualifies as a trade secret.

Businesses should combine contractual protections with appropriate internal security practices.

What Happens If Someone Misuses a Trade Secret?

North Carolina law provides civil remedies for qualifying trade secret misappropriation.

Under N.C. Gen. Stat. § 66-153, an owner may bring a civil action for misappropriation.

Section 66-154 addresses potential remedies, including injunctive relief and damages. In certain circumstances involving willful and malicious misappropriation, punitive damages may also be available. The statute addresses attorney’s fees in specified circumstances.

The availability of these remedies depends on the evidence and applicable legal requirements.

Businesses should not assume that every confidentiality dispute automatically qualifies as trade secret misappropriation.

A breach of an NDA and a statutory trade secret claim may involve different legal questions.

North Carolina Considerations for Business Nondisclosure Agreements

NC businesses should pay attention to how confidentiality agreements interact with state trade secret law and employment-related contractual restrictions.

North Carolina’s Trade Secrets Protection Act provides a statutory framework for addressing the unauthorized acquisition, disclosure, or use of qualifying trade secrets.

N.C. Gen. Stat. § 66-152 defines misappropriation and trade secrets.

The definition is particularly important because information must have commercial value from its secrecy and be subject to reasonable efforts to maintain that secrecy.

For businesses, this reinforces the value of developing an organized confidentiality program.

Employment-Related NDAs Must Protect Legitimate Confidential Information

An employer may have legitimate reasons to protect confidential business information.

However, a confidentiality provision should not be used as a disguised restriction on an employee’s ability to work for another company.

North Carolina Business Court decisions recognize that nondisclosure provisions generally differ from noncompetition and nonsolicitation restrictions. However, the actual purpose and practical effect of the provision matter.

The 2025 North Carolina Business Court opinion cited above discusses circumstances in which a nondisclosure provision may be treated as a restraint of trade when its intended effect is to prevent competition rather than protect confidential information.

For employers, this means the agreement should be tailored to the information the company legitimately needs to protect.

Federal Trade Secret Law May Also Apply

North Carolina businesses may also have access to federal trade secret protections under the Defend Trade Secrets Act.

Federal law can provide a separate civil cause of action for qualifying trade secret misappropriation.

Importantly, employers providing agreements governing trade secrets or other confidential information to employees, contractors, or consultants should review the notice requirements under 18 U.S.C. § 1833.

The statutory definition of an employee for this purpose includes individuals performing work as contractors or consultants.

The notice provision concerns the immunity established under the federal whistleblower protections.

If an employer fails to provide the required notice, the statute limits its ability to recover exemplary damages or attorney’s fees under the federal law against the individual who did not receive notice. U.S. Code

This is a specific drafting issue that businesses should discuss with an attorney when preparing employment and contractor confidentiality agreements.

What If Your Business Operates in Washington, D.C.?

Businesses operating in Washington, D.C., should not automatically apply North Carolina trade secret rules to every confidentiality agreement.

The District has its own statutory framework under the D.C. Uniform Trade Secrets Act.

D.C. Code § 36-401 defines trade secrets and misappropriation.

Like North Carolina law, the District’s definition considers whether information has independent economic value because it is not generally known or readily ascertainable and whether reasonable efforts have been made to maintain its secrecy. D.C.

For a business relationship involving North Carolina and Washington, D.C., the relevant legal analysis may depend on:

• Where the parties are located.
• Where the agreement was negotiated and signed.
• Where the confidential information is accessed or disclosed.
• Where the alleged misuse occurred.
• The governing-law provision.
• The dispute-resolution provision.
• Other relevant jurisdictional facts.

A business should have an attorney review cross-jurisdictional agreements rather than assume that selecting one state’s law resolves every potential issue.

When Is an NDA Not Necessary?

An NDA can be useful, but it is not necessary for every business interaction.

Requiring an agreement before every routine conversation can create unnecessary administrative work and make ordinary commercial relationships more complicated.

An NDA may be unnecessary when:

The information is already public. If a business is sharing information that is already lawfully available to the public, an NDA may provide little additional protection for that information.

The discussion involves only general information. A basic conversation about a company’s services, public pricing, or general business model may not require a separate confidentiality agreement.

No confidential information will be disclosed. If the recipient does not need access to sensitive business materials, a confidentiality agreement may not be necessary.

Another agreement already addresses confidentiality. An existing services agreement, employment contract, or commercial agreement may contain suitable confidentiality provisions.

The recipient will not agree to unnecessary restrictions. Some professional investors, advisers, and commercial organizations may have legitimate reasons to limit the confidentiality obligations they accept. A business can consider staged disclosure or other practical safeguards.

The decision should be based on the information involved and the risks associated with disclosure.

Common NDA Mistakes Businesses Should Avoid

Even when a business recognizes the need for confidentiality protection, mistakes in drafting and implementation can weaken the agreement’s usefulness.

Using an NDA Template Without Reviewing Its Terms

Online templates can provide a starting point, but they may not address the business’s actual circumstances.

A generic document may contain:

• An overly broad definition of confidential information.
• Missing exceptions.
• Inappropriate confidentiality periods.
• Unclear permitted uses.
• Incorrect party information.
• Inadequate return or destruction requirements.
• Conflicting provisions with other contracts.
• Missing legally required language.

An agreement should reflect the actual relationship rather than simply being copied from another business.

Signing the NDA After Information Has Already Been Disclosed

An NDA is generally most useful when confidentiality expectations are established before disclosure.

If information has already been shared, the parties should obtain legal advice about the appropriate way to document their obligations and address prior disclosures.

Defining Confidential Information Too Broadly

A business may be tempted to classify everything it shares as confidential.

However, an overly broad definition can create uncertainty and make the agreement more difficult to administer.

The agreement should identify meaningful categories of protected information and explain applicable exceptions.

Ignoring Existing Contracts

An NDA should be reviewed alongside related agreements.

For example, a contractor agreement may already contain provisions about intellectual property ownership, confidentiality, and return of company property.

Adding a separate NDA without reviewing the existing contract may create inconsistent obligations.

Failing to Control Access to Confidential Information

A signed NDA does not replace practical security measures.

Businesses should consider:

• Limiting access to people who need the information.
• Using secure document-sharing systems.
• Applying appropriate access permissions.
• Maintaining records of sensitive disclosures.
• Removing access when a project ends.
• Training employees on confidentiality procedures.

A business that freely distributes sensitive information may have difficulty demonstrating that it took reasonable steps to maintain secrecy.

Forgetting to Protect Information Received From Others

Companies sometimes focus entirely on protecting their own information.

However, businesses also need procedures for receiving and handling information belonging to clients, vendors, suppliers, and partners.

Accepting confidential information creates responsibilities that should be understood before access is provided.

Treating an NDA as a Complete Intellectual Property Strategy

An NDA does not automatically establish patent ownership, copyright ownership, trademark rights, or ownership of contractor-created work.

Businesses should determine which additional contracts, registrations, assignments, or licenses may be necessary.

How to Put an Effective NDA Program in Place

Businesses that regularly share confidential information should consider establishing a consistent process for identifying, protecting, and documenting sensitive disclosures.

Rather than creating a new agreement from scratch every time, a company can develop an NDA process that reflects its common business relationships.

Step 1: Identify Your Most Valuable Confidential Information

Start by identifying the information that could create a business risk if disclosed or misused.

Consider:

• Which information gives your business a competitive advantage?
• Which records contain sensitive customer information?
• Which processes are proprietary?
• Which documents contain financial or strategic information?
• Which employees and contractors have access to these materials?

This assessment helps determine where confidentiality protections are most important.

Step 2: Identify Who Needs Access

Not everyone working with your company needs access to every confidential document.

Create access procedures based on responsibilities and legitimate business needs.

For example, a marketing contractor may need access to campaign information but should not automatically receive access to the company’s financial records or unrelated customer databases.

Step 3: Choose the Appropriate Agreement

Determine whether the relationship requires:

• A unilateral NDA.
• A mutual NDA.
• Employment confidentiality provisions.
• A contractor confidentiality agreement.
• A vendor confidentiality agreement.
• A broader commercial agreement containing confidentiality provisions.

The agreement should reflect the actual relationship and the type of information being disclosed.

Step 4: Review the Agreement Before Signing

Check that the document clearly addresses:

• The parties.
• Confidential information.
• Permitted purposes.
• Disclosure restrictions.
• Exceptions.
• Duration.
• Return or destruction of materials.
• Remedies.
• Governing law.
• Legally protected disclosures.

Consider having an attorney review the agreement before it is used repeatedly across the business.

Step 5: Obtain Signatures Before Disclosure

Whenever practical, obtain the required signatures before providing access to confidential information.

Maintain a copy of the executed agreement with the relevant employee, contractor, vendor, or business relationship records.

Step 6: Implement Internal Security Procedures

Use practical controls to support the confidentiality obligations.

These may include:

• Password-protected files.
• Restricted document permissions.
• Secure cloud storage.
• Access logs.
• Confidentiality training.
• Employee offboarding procedures.
• Contractor access termination.
• Secure document destruction.

Step 7: Review and Update Agreements Periodically

Business operations change over time.

A company may develop new products, adopt new technologies, hire additional employees, or begin working with different types of vendors.

Review existing agreements periodically to determine whether they still reflect the company’s operations and legal obligations.

An NDA that was appropriate for a small consulting engagement may not adequately address a later relationship involving proprietary technology or extensive customer information.

What Should You Do If Someone Violates Your NDA?

If an employee, contractor, vendor, or business partner may have violated an NDA, avoid immediately assuming that every disclosure creates a successful legal claim.

Start by identifying what happened and preserving relevant information.

1. Review the Signed Agreement

Locate the executed NDA and identify:

• The parties.
• The information covered.
• The permitted uses.
• The confidentiality restrictions.
• The duration.
• The exceptions.
• The available remedies.
• The governing law and dispute provisions.

The actual contract language will help determine whether the alleged conduct may constitute a breach.

2. Preserve Relevant Evidence

Keep records that may help establish what happened.

Potential evidence includes:

• Emails.
• Text messages.
• Internal communications.
• Access logs.
• Download records.
• Shared documents.
• Contracts.
• Disclosure histories.
• Communications with the receiving party.

Avoid altering or deleting potentially relevant information.

If trade secrets may be involved, be particularly careful about how the information is handled and who receives access.

3. Identify the Information That Was Disclosed

Determine exactly what information may have been accessed, disclosed, or used.

Consider whether the information was:

• Publicly available.
• Previously known to the recipient.
• Independently developed.
• Covered by the NDA.
• Protected by applicable trade secret law.
• Disclosed for an authorized purpose.

These distinctions may affect the legal analysis.

4. Evaluate the Potential Business Impact

Consider whether the disclosure created financial, operational, competitive, or reputational harm.

For example:

• Did a competitor receive proprietary pricing information?
• Was customer information disclosed?
• Did a contractor distribute confidential product designs?
• Was source code accessed without authorization?
• Was confidential acquisition information shared outside the permitted group?

Document the known impact without exaggerating or assuming facts that have not been established.

5. Consider Appropriate Legal Action

Depending on the circumstances, possible responses may include:

• Requesting that the recipient stop using or disclosing the information.
• Demanding the return or destruction of confidential materials.
• Negotiating a resolution.
• Seeking available injunctive relief.
• Pursuing a contractual claim.
• Evaluating a trade secret misappropriation claim.

An attorney can help determine which options may be appropriate and whether urgent action is necessary.

6. Review Internal Procedures

A suspected confidentiality breach may reveal weaknesses in the company’s information security or contract management procedures.

After addressing the immediate issue, consider whether the business should revise its access controls, employee training, vendor procedures, or confidentiality agreements.

The goal should be to address the current situation while reducing the likelihood of similar problems in the future.

When Should You Have an Attorney Draft or Review an NDA?

A business can encounter situations where a basic confidentiality agreement is not enough.

Legal review may be particularly valuable when:

• Your company is disclosing valuable trade secrets.
• You are negotiating a significant business partnership.
• A potential investor wants access to detailed financial information.
• You are selling or acquiring a business.
• An employee will have extensive access to confidential information.
• A contractor is developing proprietary technology.
• Your business operates across state lines.
• You need to coordinate confidentiality obligations with intellectual property agreements.
• You are responding to a suspected breach of an existing NDA.
• Your company receives another organization’s sensitive information.

An attorney can help determine whether the agreement matches the transaction, whether the confidentiality obligations are appropriately defined, and whether other legal protections are needed.

Why Work With a North Carolina Business Law Attorney?

North Carolina business owners may need legal assistance with more than simply preparing an NDA.

Confidentiality agreements can interact with employment contracts, independent contractor arrangements, intellectual property rights, partnership agreements, and trade secret protection.

Covington Law’s North Carolina business law practice includes contract drafting and negotiation, employment agreements, nondisclosure agreements, intellectual property protection, and business dispute resolution.

Legal guidance may help your company establish confidentiality provisions that reflect its actual business relationships and applicable legal requirements.

Frequently Asked Questions (FAQs)

When should a business ask someone to sign an NDA?

A business should generally request an NDA before disclosing sensitive information to someone who does not already have an appropriate confidentiality obligation. Common examples include employees, independent contractors, vendors, consultants, prospective partners, and potential buyers.

Does every employee need to sign an NDA?

Not necessarily. Businesses should consider which employees have access to confidential information and whether confidentiality provisions should be included in employment agreements or separate documents. Employees with access to customer records, proprietary processes, financial information, or technical materials may have a greater need for specific confidentiality obligations.

Should I use an NDA before talking to a potential business partner?

An NDA may be appropriate before discussing sensitive business information with a potential partner. If both parties expect to exchange confidential information, a mutual NDA may be suitable. The agreement should establish that the information may only be used for the agreed discussions or business purpose.

Are verbal NDAs enforceable?

A verbal confidentiality agreement may raise questions about whether a contract was formed and what terms the parties actually agreed to. Proving the scope and existence of the agreement can also be difficult. Written agreements generally provide clearer evidence of the parties’ confidentiality obligations.

Should a startup require investors to sign an NDA?

It depends on the investor and the information being disclosed. Some professional investors may decline to sign NDAs during initial discussions. A startup can consider sharing nonconfidential information initially and limiting detailed disclosures until there is a legitimate need.

Protect Your Business Information With the Right Legal Agreements

Your company’s confidential information may represent years of investment, development, customer relationships, and strategic planning.

An NDA can help establish clear expectations before sensitive information is shared. However, the agreement must reflect the actual business relationship, identify the information being protected, and work alongside appropriate security procedures and other legal protections.

For North Carolina businesses, confidentiality agreements should also be considered in connection with applicable trade secret law, employment arrangements, and intellectual property rights.

Using a generic agreement without reviewing its terms can leave important questions unanswered.

Covington Law helps North Carolina businesses with contract drafting and negotiation, employment agreements, nondisclosure agreements, intellectual property protection, and business legal matters.

If your company is preparing to share confidential information, entering a new business relationship, or addressing a potential confidentiality dispute, consider obtaining legal guidance before moving forward. Contact Covington Law to discuss your business’s confidentiality and contract needs.

Legal Disclaimer: This article is provided for general educational and informational purposes only. It is not legal advice and does not create an attorney client relationship between you and Covington Law. Intellectual property rights depend on the specific facts, applicable federal and state law, registration status, ownership documents, and other circumstances. Laws and procedures can change. If you have a specific trademark, copyright, registration, licensing, or infringement concern, consider consulting a qualified attorney about your situation.