Non-disclosure agreements (NDA) are enforceable legal contracts between two parties that have real world implications if they are breached. They establish confidentiality about certain information shared between each party and what is covered by this confidentially as well as the time that it is covered for is covered in the terms of the agreement. NDAs are commonly used in startup settings, there are a lot of times when you would put an NDA in place, such as when your company shares proprietary or confidential information with contractors, employees, or potential partners or investors. It’s important to understand that breaches of an NDA can have serious consequences for both parties involved and what those consequences are.
Identify the size of the NDA breach
When an NDA is breached, the first step is typically to identify the extent of the breach. Breaches and the size of their impact on companies vary greatly. Depending on the nature of the agreement, this could involve reviewing emails, text messages, or other interactions that may contain the confidential information in question. It may also involve interviewing employees or contractors or reviewing access logs to software or databases to which people had access to.
Once the size of the breach is determined, the party that initiated the NDA (often you, but perhaps a customer of yours) may take legal action against the other party. This can involve filing a lawsuit for damages, seeking an injunction to prevent further disclosure of the information, or pursuing criminal charges if the breach was intentional and malicious. There are a lot of possible outcomes and it is always recommended that you find a lawyer for a consultation on your particular situation.
What are the consequences when a NDA is breached?
The consequences of breaching an NDA can be severe. For example, a company that shares confidential information with a contractor, investor or employee who later breaches the NDA may lose its competitive advantage or even potential customers if the information is shared with a competitor. This could result in lost revenue, decreased market share, and damage to the company’s reputation. In extreme cases, the may constitute a breach of the software as a service companies end users data which would need to be addressed further.
In addition to financial losses, breaches of an NDA can also lead to legal liability. For example, if a company shares confidential information with a contractor who later breaches the NDA, the company could be held liable for any damages caused by the breach. This could include compensation for lost profits, brand damages, as well as punitive damages to stop any future breaches.
Individuals who breach an NDA may also face further legal consequences. For example, an employee who shares confidential information with a competitor may be sued by the company for breach of their employment contract. They may also face disciplinary action from their employer, including termination of employment or put on administrative leave while a further investigation occurs.
In some cases, the consequences of breaching an NDA might be less severe. For example, if the breach was unintentional and did not result in any harm to the other party, the parties may be able to resolve the matter through negotiation and compromise. However, even in these cases, the party that initiated the NDA may be less willing to enter into future agreements with the breaching party. This is important to take into context when relating to a breach. The level of the breach has a large bearing on how companies react to this.
It is worth noting that the consequences of breaching an NDA can also extend beyond legal and financial liability. Breaching an NDA can also damage professional relationships and trust between parties. If a contractor or employee breaches an NDA, they may find it more difficult to secure future work or employment opportunities, as other companies may be hesitant to work with someone who has demonstrated a lack of respect for confidential information. This is very clear when you are working with an investor or a possible partner as trust is so important to build in these situations.
How to avoid breaches of NDA’s
To avoid the consequences of breaching an NDA, it is important to take steps to protect confidential information. This can include implementing strict access controls, using encryption and other security measures to protect digital information, and carefully monitoring who has access to sensitive information. It is also important to ensure that employees and contractors are aware of the terms of any NDAs they sign and are trained on the proper handling of confidential information.
Breaching an NDA can have serious consequences for both parties involved. The party that initiated the NDA may suffer financial losses, legal liability, and damage to their reputation. The party that breached the NDA may face legal and financial consequences, as well as damage to their professional relationships and trustworthiness. To avoid these consequences, it is important to take steps to protect confidential information and ensure that employees and contractors are aware of the terms of any NDAs they sign.