The purpose of a non-disclosure agreement (NDA), otherwise known as a confidentiality agreement, is to prevent an employee from misappropriating the trade secrets or other proprietary information of his or her current or former employer. These agreements are often incorporated into employment contracts. The Arizona Uniform Trade Secrets Act (AUTSA) also protects trade secrets in any employment situation regardless of whether there is an NDA. 

NDAs are an important tool for employers to help prevent competitors from acquiring manufacturing methods, client lists, and other propriety information that could give those competitors an advantage. Although NDAs impose some limits on employees, reasonable NDAs have generally been deemed enforceable by Arizona courts, in part because (unlike non-competition agreements) they do not prevent someone from working for another entity. 

Contractual NDAs Must Be Reasonable

When an employee is hired, he or she is sometimes required to sign an NDA before starting work or shortly thereafter. However, not all NDAs will be upheld in an Arizona court if they are challenged. The court must first determine that an NDA is “reasonable” and does not impose excessive restrictions on the employee in terms of time, geography, or content.

First, an appropriately restrictive NDA cannot apply for an excessive period of time. What this means in practice is open to interpretation, but it is safe to say that an NDA will not be enforceable if it is found to bind the employee for an unreasonable timeframe. For example, if the NDA states that certain information cannot be disclosed for 25 years, courts would likely find this to be unreasonable because the information probably would be obsolete or irrelevant by then.

Second, the NDA must state a specific, reasonable geographic area where it applies. An NDA that applied to the entire world, for instance, would be unreasonable. Third, an NDA must not be overbroad in its definition of confidential or proprietary information. For example, if an NDA defined the number of the company’s employees or the location of its office as confidential, this clearly would be overbroad, as neither of these pieces of information is proprietary or confers a business advantage over rivals.

The general principle is that enforceable NDAs are geared toward protecting actual confidential data and not toward curtailing competition. An NDA that has extremely broad language that makes it look like a non-completion agreement may be deemed invalid. 

Companies Must Take Additional Steps to Protect Information

Not only must an NDA be reasonable, but the company also has to take other measures to protect the information it claims is proprietary. If the NDA is ever challenged, this will strengthen the employer’s case that the information at issue is indeed confidential. If the employer does not take any measures to protect supposedly proprietary data outside of requiring employees to sign an NDA, there is a real risk that a court will find that no actual trade secrets have been misappropriated in the first place.

By the same token, an NDA cannot apply to publicly available information. This is where leaks can be extremely damaging; if information is widely disseminated, a court will no longer consider it proprietary and will not enforce an NDA to protect it.

Trade Secrets Are Protected Under the AUTSA

In Arizona, information that is considered a trade secret is protected by the AUTSA with or without an NDA. Under the statute, a “trade secret” means almost any confidential information that derives its economic value from remaining secret and is the subject of reasonable steps to protect it.

A.R.S. § 44-401 provides that it is illegal to misappropriate this information. Misappropriate means either:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who either:

(i) Used improper means to acquire knowledge of the trade secret;

(ii) At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it, was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(iii) Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

The AUTSA does not cover all valuable information that might be considered proprietary. As a result, businesses are better off requiring employees to sign an NDA rather than relying solely on the AUTSA’s protections.

What Happens If a Trade Secret Is Stolen?

When someone misappropriates a company’s trade secret(s), the company most likely wants to stop the information from being used further, see that it is returned, and receive compensation for any financial damages resulting from its use up to that point. A.R.S. § 44-402, § 44-403, and § 44-404 allow for these remedies. The statute provides that damages can include “both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.” Damages can include attorneys’ fees related to the litigation.

Contact Counxel Legal Firm

If you would like to talk to an attorney about a non-disclosure agreement, contact a member of the Counxel Legal Firm at 480-536-6122 or at intake@wordpress-457010-3165254.cloudwaysapps.com

This article is intended for informational purposes only and does not constitute legal advice for your s

This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact intake@wordpress-457010-3165254.cloudwaysapps.com or 480-536-6122 to request specific information for your situation.

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