Non-Disclosure Agreements

What Is A Non-Disclosure Agreements and When Are They Used?

Non-disclosure agreements (NDAs) remain a fundamental tool for businesses seeking to protect confidential information and trade secrets. However, changes in federal and state laws continue to shape their enforceability. Business owners, entrepreneurs, and professionals must be aware of evolving legal standards to ensure their NDAs remain valid and enforceable in 2025. Federal laws such as the Defend Trade Secrets Act (DTSA), state-specific statutes like the Illinois Trade Secrets Act (ITSA) (765 ILCS 1065), and restrictions under the Illinois Freedom to Work Act (IFTWA) all impact NDA enforcement. Understanding these legal frameworks is crucial for safeguarding proprietary information while avoiding agreements that courts may deem unenforceable.

Federal Trade Secret Protection and the Defend Trade Secrets Act (DTSA)

The DTSA, enacted in 2016, provides businesses with a federal cause of action for trade secret misappropriation. Prior to the DTSA, trade secret claims were governed solely by state laws, resulting in inconsistent enforcement across jurisdictions. The DTSA allows companies to file claims in federal court if the trade secret in question relates to interstate or foreign commerce. To be protected under the DTSA, information must meet three key criteria: (1) it must be secret, (2) it must derive economic value from its secrecy, and (3) the owner must have taken reasonable steps to maintain its secrecy.

A significant provision under the DTSA is the whistleblower immunity clause, which shields employees who disclose trade secrets in confidence to government officials or attorneys when reporting suspected violations of the law. Employers must provide notice of this immunity in their non-disclosure agreements; failure to do so can result in the loss of exemplary damages and attorneys’ fees in trade secret litigation. Companies that rely on non-disclosure agreements should ensure this statutory notice is incorporated into their business agreements to preserve their full range of legal remedies.

Illinois Trade Secrets Protection and the Illinois Trade Secrets Act (ITSA)

In addition to the DTSA, Illinois provides robust protections under the Illinois Trade Secrets Act (ITSA). The ITSA closely follows the Uniform Trade Secrets Act (UTSA) model and protects information that is (1) not generally known, (2) derives economic value from its secrecy, and (3) subject to reasonable efforts to maintain secrecy. Unlike the DTSA, ITSA does not require a connection to interstate commerce, making it applicable to businesses operating entirely within Illinois.

ITSA allows for both injunctive relief and monetary damages, including attorneys’ fees in cases of willful and malicious misappropriation. Employers should carefully draft non-disclosure agreements to align with ITSA’s requirements and avoid common pitfalls such as failing to define confidential information properly or neglecting to implement internal security measures that demonstrate a commitment to secrecy.

Key Considerations for Non-Disclosure Agreements Drafting

Choice of Law and Venue

Businesses must carefully consider choice of law and venue provisions when drafting non-disclosure agreements. Agreements should specify whether they are governed by federal law (DTSA), state law (ITSA), or both. For businesses operating in multiple jurisdictions, invoking both federal and state law may provide the broadest protection. Employers should also consider including a venue clause specifying whether disputes will be resolved in federal or Illinois state courts. Choosing the appropriate jurisdiction can be a strategic decision, as some courts are more favorable to enforcing non-disclosure agreements than others.

Definition of Confidential Information

An NDA’s effectiveness often hinges on its definition of confidential information. Courts have increasingly scrutinized non-disclosure agreements that use vague or overly broad definitions. To be enforceable, an NDA should:

• Clearly define what constitutes confidential information.
• Specify exclusions, such as publicly available information, independently developed knowledge, or information disclosed through legal processes.
• Include provisions requiring confidential information to be marked as confidential where appropriate.
• A well-drafted definition ensures that courts can enforce an non-disclosure agreement without ambiguity and that employees understand their obligations under the agreement.

Confidentiality Obligations

NDAs should impose clear obligations on the receiving party, including restrictions on use, disclosure, and reproduction of confidential information. Employers should define:

• How long confidentiality obligations apply (e.g., during employment and for a defined period after termination).
• Procedures for handling confidential information, such as storage, access restrictions, and return or destruction of information upon termination of the relationship.
• Exceptions for legally compelled disclosures, including responses to subpoenas or government investigations, ensuring employees know how to comply with legal orders without violating the non-disclosure agreement.

Enforcement and Remedies for Breach

Enforcement provisions in non-disclosure agreements must be carefully drafted to withstand legal scrutiny. Both the DTSA and ITSA allow for injunctive relief and monetary damages in the event of a breach. However, employers should also consider specifying additional contractual remedies, including:

• Immediate injunctive relief to prevent further unauthorized disclosures.
• Liquidated damages clauses (if enforceable under Illinois law) to establish predetermined compensation for breaches.
• Recovery of attorneys’ fees and litigation costs to deter violations and strengthen enforcement.

Employers should also ensure that their internal practices align with their non-disclosure agreements. Courts may decline to enforce non-disclosure agreements if businesses fail to take reasonable measures to protect confidential information, such as failing to restrict access to sensitive data or neglecting to train employees on confidentiality obligations.

Recent Court Trends Affecting Non-Disclosure Agreement Enforceability

Recent case law suggests that courts are increasingly reluctant to enforce overly broad non-disclosure agreements, particularly those used to prevent employees from working in their industry. Courts are also scrutinizing whether businesses take proactive steps to protect confidential information. If a company fails to implement internal security measures—such as limiting employee access, requiring passwords for sensitive data, or conducting confidentiality training—it may lose trade secret protection.

Additionally, some courts have invalidated non-disclosure agreements that lack adequate consideration for current employees. If an existing employee is asked to sign a new non-disclosure agreement, the employer should provide additional benefits, such as a promotion, bonus, or additional job responsibilities, to ensure enforceability.

Best Practices for Employers

To ensure their non-disclosure agreements remain enforceable, businesses should:

• Tailor non-disclosure agreements narrowly to protect trade secrets without overreaching.
• Ensure compliance with DTSA’s whistleblower immunity provisions.
• Implement strong internal confidentiality safeguards, including restricting access to sensitive information and providing employee training on confidentiality obligations.
• Regularly review and update non-disclosure agreements to reflect evolving laws and court rulings.

Conclusion

Non-disclosure agreements remain a powerful tool for protecting proprietary business information, but their enforceability in 2025 depends on compliance with federal and Illinois laws. Business owners and professionals should ensure that their agreements align with the DTSA, ITSA, and IFTWA to avoid potential legal pitfalls. Given the increasing scrutiny on restrictive covenants, businesses should consult legal counsel when drafting and enforcing non-disclosure agreements to ensure compliance and protect their valuable confidential information.