Indemnification Clauses in NDAs: What You're Agreeing to Pay For

You're signing an NDA before starting a freelance project or a business conversation. The document is three pages. You find the confidentiality section and read it. You miss the indemnification section at the bottom.

That section may be more financially consequential than everything else in the document.

What indemnification means

Indemnification is an obligation to cover another party's losses. In an NDA, an indemnification clause typically says: if you breach the agreement and disclosure of confidential information causes the other party harm, you pay for that harm — including their attorney's fees to pursue the claim.

In plain terms: you agree to be financially responsible for the consequences of breaching the NDA. That can include:

• The other party's legal fees
• Their lost profits or business damages
• Defense costs if the breach leads to third-party claims

Indemnification doesn't mean you automatically owe something — it means your financial exposure extends beyond just the direct claim.

One-way vs. mutual indemnification

One-way (or unilateral) indemnification: Only you indemnify the other party. If they breach the NDA — disclosing things they weren't supposed to, misusing your confidential information — you can't recover their legal costs under the indemnification clause. It only runs in one direction.

Mutual indemnification: Both parties indemnify each other. If either party breaches, the breaching party bears the other's losses. This is balanced.

Most company-issued NDAs use one-way indemnification — in their favor. That's worth noticing and potentially negotiating.

Liquidated damages

Some NDAs specify a fixed dollar amount you owe per breach — liquidated damages. You might see: "Employee agrees to pay $50,000 per unauthorized disclosure of confidential information."

This creates a specific, quantified liability. Courts typically enforce liquidated damages if the amount represents a reasonable estimate of actual harm. Courts are less likely to enforce amounts that look punitive or wildly disproportionate to the actual damage.

But "less likely to enforce" is not the same as "won't enforce" — and even a losing liquidated damages claim costs money to defend.

Injunctive relief clauses

Most NDAs also include an injunctive relief clause: the non-breaching party can seek an injunction (a court order stopping you from disclosing information) without having to prove actual damages. This is a standard provision — courts recognize that money damages may not be adequate for confidentiality breaches.

The practical implication: even before a full trial, the other party can get a court order restricting your ability to speak or act. This is a meaningful tool that works quickly.

What to look for in your NDA

Search for "indemnif," "hold harmless," "liquidated damages," and "injunctive relief."

Is indemnification mutual? If not, ask to make it mutual. This is a reasonable ask that many companies will accept.

What's the scope of covered losses? "Losses, damages, costs, and expenses, including attorney's fees" is standard. "Consequential, indirect, and punitive damages" is broader — ask to remove punitive and consequential damages from the indemnification scope.

Is there a cap on your liability? Asking for a cap — "in no event shall either party's liability under this agreement exceed $[X]" — limits your maximum exposure and is worth requesting for NDAs with broad scope.

What triggers it? Does any disclosure trigger it, or only intentional breach? "Gross negligence or willful misconduct" as the trigger is more favorable to you than "any breach."