- June 26, 2024
- 15 min read
- Sirion
Introduction
Businesses put non-disclosure agreements (NDAs) in place for a specific reason – they have information to protect. Once that contract is signed, you’re legally bound to keep the information it covers secret.
But what happens if you violate your agreement? Are you looking at jail time or a heavy fine? The consequences of breaking a non-disclosure agreement are not something to dismiss. Keep reading to learn the basics of NDA, what happens if you break an NDA and how to improve your contract management to avoid heavy penalties.
What is an NDA?
A non-disclosure agreement (NDA) is a legal contract that establishes a confidential relationship between two or more parties. It ensures that sensitive information disclosed during business dealings remains protected from being shared or misused.
NDAs are commonly used in:
- Business negotiations
- Employee onboarding
- Vendor and supplier agreements
- Partnerships and collaborations
How Does an NDA Work?
An NDA outlines what constitutes confidential information, who can access it, and the permissible use of that information. Key elements include:
- Definition of Confidential Information: Specifies what information is protected.
- Obligations of Parties: Defines duties like non-disclosure and safeguarding sensitive details.
- Duration: States how long the agreement remains binding.
- Consequences for Breach: Details penalties for violations.
NDAs provide legal recourse for the disclosing party if the receiving party violates the agreement.
The Consequences of Breaking an NDA
What happens if you violate an NDA? You’ll face some heavy consequences for breach of contract. The gravity of these consequences will depend on what steps your business takes.
Remedies for breaking an NDA can include:
Civil Lawsuits
If a party finds you in breach of the NDA, they can sue you for damages. Since breaking an NDA is not a crime, a judge will hear these cases in civil court.
You’ll need to employ your counsel as you enter the court proceedings. That means in-house legal teams will have their hands full and be away from other business tasks for the duration of the case.
Financial Compensation
Damages are the most common remedy for breach of contract cases. Especially if the affected party can prove they financially suffered because you violated the NDA, courts will order you to pay for those losses.
Employment Termination
Many enterprises require you to sign an NDA as a condition of employment. If you violate the agreement, they often have the right to terminate you. Not only could this be paired with additional penalties, but it can also make finding a new role more difficult.
Injunctions
Often used when defendants cannot afford to pay damages, injunctions prevent you from continuing to share protected information moving forward and can limit your overall access to the data.
Even though NDA violations are handled in civil court, violating an injunction is a criminal offense—you can face criminal fines or jail time if you don’t follow the court order.
With such heavy consequences on the line, you’ll want to improve your risk management strategies and avoid breaking an NDA in the first place.
NDA Violation Examples
Examples of NDA breaches include:
- Sharing trade secrets with competitors.
- Discussing confidential company information with media outlets.
- Using proprietary data for personal gain.
- Failing to secure documents that lead to unauthorized disclosure.
Cases When You Can Break an NDA
Usually, there is no reason to break an NDA — but these contracts don’t provide blanket protection for every scenario.
For example, organizations cannot use NDAs to protect information that relates to public interest or breaks the law. If either case applies, courts won’t hold you liable for breaking an NDA and sharing the data.
If neither of these conditions applies, you should ensure you abide by the contract obligations and protect the outlined information to avoid penalties.
How to Avoid Breaking an NDA
No business wants to face the fallout of violating a non-disclosure agreement. You can keep yourself safe by improving a few contract management processes.
1. Store Contracts in a Central Repository
Use AI to transform paper contracts, PDFs, and other physical documents into digital records. Then, store your entire portfolio in a central contract repository that increases visibility and connects data across agreements.
2. Leverage AI for Clause Drafting
AI-trained CLM software can leverage historical contract data, pre-approved templates, and contract clause libraries to steamline contract creation.
Not only does this save you time drafting your agreements, but the technology also ensures you include contract clauses and language that align with your enterprise positions.
3. Carefully Monitor Contract Language
Reduce contract risk by leveraging AI-assisted review to identify missing clauses, deviations, and remediation requirements. Use this data to support renegotiation strategies that position your business for the best possible outcomes.
4. Track Contract Obligations
Establish role-based dashboards to track expirations, renewals, obligations, and milestones. The more visibility you have into these key contract details, the less likely you are to break NDAs or other agreements within your portfolio.
5. Set Reminders for Key Dates
Once you set up reporting dashboards, configure threshold-based alerts and notifications to respond to opportunities and monitor NDA expiration dates.
FAQs: Breach of an NDA
How long can an NDA last? What is an NDA Termination Clause?
An NDA’s duration depends on the terms agreed upon, often lasting a few years or indefinitely. Termination clauses specify when the agreement ceases to apply.How old do you have to be to sign an NDA?
Typically, signatories must be of legal age, which is 18 in most jurisdictions.Is violating an NDA a crime?
Breaking an NDA is usually a civil matter, not a criminal offense, unless it involves a violation of a court injunction.Can someone go to jail for breaking an NDA?
Jail time applies only if a court-ordered injunction tied to the NDA is violated.Can someone break an NDA in court?
Yes, NDAs may be overridden by court orders, especially in cases involving public interest or illegal activities.What is the penalty or punishment for breaching an NDA?
Penalties include monetary damages, injunctions, and possibly termination of employment.What happens if you don’t sign an NDA?
Refusing to sign may lead to a loss of opportunity, as businesses often require NDAs to share sensitive information.
Align Your Contracting Processes to Avoid Contract Breach
NDAs, like any other business agreement, require attentive contract management to maintain compliance and avoid penalties.
Sirion’s contract AI lets you leverage generative AI to create, execute, and better manage your entire contract portfolio. And you can do it all in a single end-to-end CLM platform.
Get in touch with our team to learn more and start reducing contract risk across your enterprise.
Additional Resources
Defining Post-Negotiation in Contract Management
What is Force Majeure Clause? Using AI for Effective Response
Essentials of Contract Obligation Compliance Management
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