NDA mistakes that get Michigan small businesses sued

Talk too much and your secrets get spent / sign the NDA before they leave the tent.

But here's the catch most Michigan business owners don't see coming: most NDAs aren't worth the paper they're printed on. Not because the concept is broken — because the drafting is lazy.

In our contract review work at ELN Law, we've seen this happen to Detroit founders, musicians, and small business owners over and over. Roughly 7 out of 10 NDAs have at least one drafting error that would make them difficult or impossible to enforce in a Michigan court.

Here are the three errors we see most often, what they actually do to your protection, and how to fix them.

"Confidential Information" defined too broadly

The most common mistake. The contract says something like: "Confidential Information includes all information disclosed by the Discloser, including but not limited to..."

That sounds protective. It isn't.

Michigan courts won't enforce a confidentiality clause that covers everything — including information that's already public, information the recipient already knew, or information that's commonly known in your industry. This isn't just bad drafting; it's bad business: under Michigan's Uniform Trade Secrets Act, MCL 445.1902, the information your NDA protects has to actually qualify as a trade secret — meaning it derives value from being secret and you took reasonable steps to keep it that way. When the definition is too broad, the whole clause can be struck down or narrowly construed.

The fix: Define Confidential Information specifically. List the categories that actually matter — customer lists, pricing models, source code, trade secrets, financial information, product roadmaps. Add carveouts for information that is or becomes publicly available through no fault of the recipient.

No carve-out for prior knowledge

If your potential business partner already knew your "secret" before you handed it over to them, you can't put that genie back in the bottle. A well-drafted NDA acknowledges this with what's called an "independently developed" or "prior knowledge" carve-out.

Most form NDAs from online template sites skip this entirely. The result: the recipient can claim they already knew the information, and the burden shifts to you to prove otherwise — a fight you usually lose.

The fix: Add a clause that says Confidential Information does NOT include information that (a) was known to the recipient before disclosure, (b) was independently developed without using your confidential information, (c) was rightfully received from a third party not under a confidentiality obligation, or (d) becomes publicly known through no fault of the recipient.

No remedy clause

This is the one that hurts the most. The NDA says "Recipient shall not disclose Confidential Information." Great. But what happens if they DO disclose it?

If the document doesn't specify the remedy — damages, injunctive relief, attorney's fees, liquidated damages — the court decides. And the answer you get from a Michigan court without contractual specificity is usually disappointing.

The fix: Build in a remedy clause that specifies (a) you're entitled to injunctive relief to stop ongoing disclosure, (b) you're entitled to actual damages plus attorney's fees, and (c) if quantifying damages is impractical, a reasonable liquidated damages amount applies.

When to call ELN

If you're about to sign an NDA — whether you're the discloser or the recipient — a 30-minute contract review can save you months of litigation and tens of thousands of dollars in legal fees later. We handle contracts of all kinds for Michigan small businesses, founders, musicians, and professionals every week.

Got a contract you want a second set of eyes on? Schedule a free contracts consultation or call ELN directly. We'll tell you straight up if the document protects you or just looks like it does.