What is a Non-Disclosure Agreement?
A Non-Disclosure Agreement or NDA is a legally binding contract or part of a contract between at least two parties that stipulates the confidential material and/or information that the parties may share with one another for certain purposes, but seeks to restrict access to or by third parties. In the legal context, the term confidential information is broad and can include a party’s business strategies , formulas, practices, processes, financial information, sales forecasts, internal cost data, R&D, customer lists, engineering specifications, etc. Moreover, these agreements are often entered into even before the business relationship is formalized in order to prevent either party from solicitating each other’s employees in the interim.
NDA Legal Requirements in Florida
In Florida, non-disclosure agreements are not codified under any specific statute. However, they are subject to common law principles and the rules and regulations under the Uniform Trade Secrets Act (UTSA). Common law has largely been derived from the American Law Institute’s Restatement (Seccond) of Torts. Section 757 holds, "One who discloses or uses without permission any confidential information belonging to his employer, acquired by reason of his employment, is subject to liability to his employer for physical harm caused to the employer by disclosure of the information, and for general damages for a nonphysical harm caused by the disclosure of the information." Florida also recognizes the inevitable disclosure doctrine. That is, the injunctive relief of an employment contract may be granted if it is proven that the former employee cannot choose but use the trade secrets of his old employer. Further, the Florida Supreme Court has held that expressed confidentiality agreements/breaches require an intentional discard of confidentiality concerning another’s trade secrets that results in damages, which is actionable given that the secret is not publicly known. National Medical Enterprises v. Godbey, 624 So. 2d 730, 735 (Fla. 1993). Florida’s Uniform Trade Secrets Act defines a trade secret as, "information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." It is important to note that the subject of an NDA under Florida law may be virtually anything that derives independent economic value from not being known. Further, the rules and conduct of NDAs used in Florida may differ depending on the nature of an industry, whether a company trades internationally, and whether the conflict between parties breaches Federal law.
Florida NDA Essentials
An effective Florida Non-Disclosure Agreement (NDA) includes certain terms designed to protect the rights and interests of parties entering into a Confidentiality Agreement. A Florida Confidentiality Agreement must identify the parties and define the terms, scope and duration of the confidentiality obligation. A few of the key components of a NDA are set forth below:
The Parties to the Florida NDA
A Florida Non-Disclosure Agreement should always identify the parties to the agreement. The disclosing party is the party furnishing the confidential information and/or material (i.e., the "sourcer"). The receiving party is the party agreeing to keep the confidential information secret (i.e., the "vendor"). The NDA can also include safeguards by including a manager and/or custodian to oversee disclosure of the confidential information. The entrance of a third party into the NDA may also highlight the importance of confidentiality and restrict access to third parties with a confidentiality duty.
Definition of the Confidential Information to be protected
A Confidentiality Agreement should define the confidential information being disclosed. The NDA can either list the confidential information or define categories of information to be kept secret. The NDA can also specify the manner in which confidential information is attached, with a legend such as "CONFIDENTIAL". The NDA must be specific enough to notify the other party that confidential information has been disclosed or will be disclosed, yet not so specific that confidential information is irretrievably lost; sometimes separate lists or schedules are attached exposing only the fact that there is a list of confidential items without retaining the details.
Time Period for Confidentiality
A Florida NDA should include a time period, in years or some other measure, during which the parties’ confidentiality obligations apply. For example, the parties may agree to a period of indefinite duration, subject to a right to cancel the NDA on specified notice. The parties can also agree that the obligations continue after termination of the NDA and/or following the death of the recipient. It is important for the NDA to define reasonable time periods to avoid litigation over the period during which each party has confidentiality obligations.
When to Utilize an NDA
There are many situations in business in which comprehensive contractual protections by way of a non-disclosure agreement can help ensure the protection of proprietary or sensitive business information. Non-disclosure agreements can be used, for example, when talking to a potential business partner or investor, before executing a business sale agreement, and even in connection with discussing a potential merger or acquisition of a company.
A non-disclosure agreement can also be used as a means by which a new employee can acknowledge prior to their start date that they will be privy to confidential information, ensuring that there will not be a "surprise" later on down the line if the employee is told that what they’re privy to is secret information.
Non-Disclosure Agreement Enforceability in Florida
In Florida, the enforcement of NDAs is subject to both state and federal law. Generally, the enforcement of an NDA depends on its specific terms as well as the nature of the confidential information at issue. Under Florida law, for an NDA to be enforceable, it must be supported by consideration, meaning that both parties must receive something of value in exchange for signing. If an NDA is found to be unenforceable, it may be declared void by a court . Violations of an NDA can result in lawsuits to recover any damages suffered by the disclosing party as a result of the breach. While Florida courts may be reluctant to enforce non-compete provisions in NDAs unless they are reasonable in scope, they will generally enforce NDAs where the alleged breach occurred after the termination of the NDA. Remedies for breach of NDA in Florida may include monetary damages and injunctive relief, among others. Most NDAs will set forth a process for dispute resolution, which may include mediation and/or arbitration provisions.
Limitations and Legal Issues
Despite their popularity, NDAs are not without common limitations and challenges. One of the common problems encountered is overbroad language. Some NDAs stifle employee mobility to the point where it is unclear what information is to be protected. In a California case, the court refused to enforce an NDA that prohibited former employees from using any information or data related to the employer, even if the information was not proprietary to the employer but instead learned in general industry experience, stating: [Defendant] further argues that even in the absence of trade secrets, [Company] had a protectable interest in its confidential information. But it was entitled to no greater protection than what was necessary to protect its confidential information. "Although confidentiality agreements are favored in the law, they will not be enforced if they are broader than necessary to give adequate protection to the employer’s interests. . . . They will be enforced only to the extent they do not come into conflict with public policy." Moreover, a non-compete agreement is reasonable only insofar as it enforces the employer’s lawful interest in protecting its trade secrets or confidential information. Here, the non-compete clause in the Agreement was not limited to [Company’s ] trade secrets or confidential information but instead prevented [Employee] from using any information or data related to [Company]. Such a restriction was more extensive than necessary to protect [Company’s] legitimate interests in its trade secrets and confidential information. If an NDA contains temporally overbroad language, the court may very well refuse to enforce it or enforce it for a shortened duration of time. For instance, if an NDA states that the covenants are to remain in effect during the applicable limitations period for theft of trade secrets or confidential information, the NDA may appropriately be enforced only for that period. On the other hand, if an NDA states that the covenants are to last for five years from termination of employment, and there is no illegal or fraudulent act that the employee has done or is about to do that would cause the employer to lose rights to the information at issue, it may be considered overbroad and unenforceable. The efficacy of NDAs is also sometimes limited because there is a high burden of proof for employers in actually proving a breach. Employers often spend large amounts of money in attorney fees trying to prove a breach of an NDA when they would clearly have been just as well served with a less burdensome and less costly covenant not to compete.
Drafting a Non-Disclosure Agreement in Florida
When faced with the need for a Non-Disclosure Agreement, it is important to give careful thought to its drafting. Because NDAs are usually executed before the exchange of Confidential Information, they can be perceived as trusting instruments. However, it is important that the document be clear and that the terms be unambiguous. It is advisable to have the document drafted or reviewed by counsel prior to execution. As we have discussed above, there is no one-size-fits-all in Florida when it comes to restrictive covenants so NDAs should be tailored to fit specific circumstances and objectives. To hold up in court, NDAs must not be overbroad, or overly restrictive, and must clearly identify the subject matter and the parties to the agreement. If an NDA is overly broad, a court could sever the offending provision and leave the remainder intact, but the more liberal a court is in deciding to do this, the riskier it is for the disclosing party to leave anything to chance. Generally, from a legal standpoint, the NDA should be as limited as possible given the business objectives, with as few carve-outs as can be avoided. Bolster your position by clearly defining the subject matter of the NDA and limiting its application in as many ways as possible: geographical limitation; duration; and scope (thus limiting the potential for future disclosure of information disclosed to third parties, etc.). While it may not be the best business strategy, it is possible to draft a valid NDA without a term if the parties expressly agree to such and acknowledge the NDA may result in irreparable injury. It is best, however, to specify in the NDA the duration of the confidentiality obligations (typically 3-5 years in Florida). NDAs are not, however, typically enforceable against a former employee in Florida because Florida courts are skeptical of these agreements.
Consulting an Attorney
Understanding and properly drafting a Non-Disclosure Agreement is an essential factor for a company to protect its trade secrets. A Non-Disclosure Agreement can be a very effective tool in preventing the misappropriation and use of a company’s trade secrets; however, if it is written poorly or fails to comply with Florida law, it may not be effective and could be considered invalid. Therefore, a company should seek counsel from an attorney experienced in the field of intellectual property and trade secrets to draft the Non-Disclosure Agreement, or at least review the agreement before it is signed . In the alternative, a company should have an attorney on retainer that handles this area of the law in order to review a proposed Non-Disclosure Agreement provided by a party with which a company is considering entering into a business relationship or employment. A properly drafted Non-Disclosure Agreement that complies with both state and federal law will go a long way in protecting a company’s most valuable trade secrets. While the information provided in this article is intended to be a general overview of the Florida statutory and common law protections regarding trade secrets, a party should consult with an attorney that specializes in this area of the law to advise them on how to best fit its needs.