If you want to protect your business you need to think seriously about non-disclosure agreements
A non-disclosure agreement (NDA) is a legal document used to protect confidential information from being disclosed or shared with unauthorised parties.
For a business owner, an NDA can be an invaluable tool in safeguarding all types of confidential information associated with their company, such as;
- business plans
- trade secrets
- intellectual property
- protected information
- financial information
- customer information
When properly drafted and executed, an NDA can serve to reduce the risk of damage to a business resulting from improper disclosure and use of confidential information.
What is an NDA?
A non-disclosure agreement is a legally binding document between two or more parties that establishes a confidential relationship regarding the exchange of sensitive information.
Generally, the agreement expresses provisions for the sharing and protection of information between the parties, such as what information is to be kept confidential, how it will be used, and who is entitled to access it.
The non-disclosure agreement aims to provide additional contractual protections such as:
- enforcement of patent rights
- infringement or misappropriation of trade secrets
- breach of confidentiality obligations
NDAs are widely used in many industries, including technology, healthcare, financial services, media and entertainment. They are especially critical for business owners to protect their interests and ensure that confidential information remains secure.
What are the types of non-disclosure agreements?
There are several types of non-disclosure agreements, each designed to address specific needs.
Mutual vs One-way non-disclosure agreements
Mutual NDAs provide a two-way confidential relationship between two or more parties, where two or more parties agree on how the information should be protected. One-way non-disclosure agreements involve a request that the receiving party or parties only should not disclose confidential information.
All NDAs should be in the form of a Deed and properly executed by the parties thereto.
These protect the disclosing party from indirect disclosure or use of confidential information through third parties.
Time and extent modifications
NDAs can also be limited to specific time-periods to cover short-term and long-term agreements. Additionally, there are master non-disclosure agreements (MNDA) used for ongoing business relationships and side letters that modify existing NDAs on a case-by-case basis.
When an NDA is signed between two parties in different countries, the agreement needs to clearly state which laws govern the contract.
This is especially important to note if the countries involved have distinct legal systems, such as England and Wales or Scotland and Northern Ireland.
Additionally, it must be specified in which courts the agreement can be enforced.
While parties may wish to give exclusive jurisdiction to the courts of one country, this should be avoided in order to ensure effective enforcement of the NDA in any country where unauthorised disclosure occurs.
What to consider before creating the NDA
Do you really need to share the information?
Keeping confidential information secure is best achieved by not sharing it in the first place.
A recent controversy involving the Board of Trinity College highlighted an interesting point based upon a conflict of interest, where the Board were advised not to sign non-disclosure agreements with the College. There was a leak of information at Board level to a newspaper. The case involved a potential criminal investigation in respect of alleged unauthorised payments at the College. Of course it is important that a Board of a College is independent and acts in the interests of the common good, so the case highlighted a situation where an obligation to be confidential might not be right for the particular circumstances. The message here is that NDAs must not be used to cover up criminal acts or wrongdoing.
It is important to discuss the use of sensitive information with potential partners such as acquirers, investors, manufacturers and stockists in advance.
NDAs provide both parties with a legally binding contract that protects sensitive information while outlining terms regarding its use and dissemination.
This ensures all parties understand their obligations and that sensitive information is kept confidential.
When discussing your business ideas or other sensitive information with advisors such as accountants, banks, financial advisors, insurance brokers, business coaches or marketing agencies, it is important to assume conversations are not automatically confidential, so be careful what you share during initial discussions.
Key things to add to your NDA
When creating a non-disclosure agreement, there are some essential details to include;
- define the disclosing party and the receiving party
- establish the reasons for the agreement
- define which information is considered confidential
- how will information be used?
- what is classified as non-confidential information and are there exceptions to this?
- the length of the agreement and how each party can terminate it
- return of information
- what happens to the violating party if the NDA is breached?
This ensures all parties understand their obligation to protect sensitive information and are held responsible for violations.
Defining the parties
Where two or more parties are involved, you’ll want to define the disclosing party and receiving party and make sure both parties sign the legal contract. If both parties are sharing and receiving the information, then a mutual NDA should be drawn up.
However, if only one party is disclosing and the other receiving, a one-way NDA should be used.
The Purpose of the NDA
You should be clear about the reason for the disclosure of confidential information so that the legal documents are as accurate as possible.
Define what the confidential information is
In an NDA, it is important to clearly identify which information will be considered confidential.
The disclosing party may want a broad definition to include all information shared, while the recipient may prefer a specific and narrow definition to ensure they are aware of which information needs to be kept secret.
It is important to note that the clause should also specify what constitutes “privileged” information, and include all forms of communication that may be used to exchange information, such as documents, emails, oral conversations, hand-written notes, letters etc.
As the Disclosing Party in an NDA, it is essential to cast a wide net but ensure all clauses are properly defined so that no holes remain.
How will information be used?
This clause is where the intended use of the confidential information is clearly defined.
It is important to be specific about why the receiving party needs access to the information, as well as what third parties are included within this agreement.
Keeping third parties separate from this clause helps maintain clarity and ensure that all intentions are clear.
Prior written consent may be given by one party to the receiving party or parties to use such information.
Exceptions: Non-confidential information
You should identify any exceptions to the receiving party’s obligations.
This may include any information that is already public knowledge or obtained from a third party and not obligated by confidentiality.
Furthermore, it is important that there are provisions allowing the receiving party to disclose this confidential information if required by law.
An NDA should include provisions outlining how either party can terminate the agreement, as well as the duration of the party’s obligations after the relationship ends. This time limit can vary from an indefinite period or a fixed term, usually ranging from 2-5 years, since most information tends to become outdated and thus worthless after some time.
Return of information
To ensure the confidentiality of the information is maintained, a clause should be included in your non-disclosure agreement that specifies how and when the confidential information must be returned or destroyed by the Recipient Party.
Depending on the circumstances of the relationship, this clause may need to make allowance for any difficulty erasing data shared electronically, due to modern technology such as hard drives, drop boxes, thumb drives and email storage.
This type of clause will also inform the Recipient Party that all information received must be returned or deleted and prevent them from using it or sharing it in future.
What happens if the NDA is breached?
To ensure that both parties are protected in the case of a breach, your non-disclosure agreement should include a clause that specifies mutually agreeable remedies should a breach occur.
Such a clause must take into account the possible costs of a breach, as they can be difficult to calculate or prove.
This clause must also explicitly preserve the Disclosing Party’s right to seek remedies, while avoiding being too specific, one-sided or excessively demanding in terms of compensation. A balanced approach will make it more likely that the Recipient Party is willing to sign the agreement.
Are NDAs enforceable?
There are some circumstances where an NDA may be deemed to be non-enforceable and it will be difficult to take legal action:
Where the NDA is too broad
An overly broad or restrictive agreement could be invalidated in a court of law.
In addition, it may be important to ensure that all provisions have a clear purpose and are limited in their scope and duration.
If an NDA is too generic or open-ended, it can potentially be challenged due to lack of consideration or being too restrictive.
It is also important to keep in mind that certain types of information may not be protected by an NDA, such as material that was already disclosed with permission from all parties involved or information which was made public by another means.
Therefore, all parties should seek legal advice before signing a non-disclosure agreement in order to ensure their rights are properly protected.
Where the information is not confidential
If an NDA is signed, but the information being exchanged has already been disclosed publicly or has been widely disclosed through other means, it can be difficult for a company to enforce the agreement against, for example, an employee.
In such cases, a court may determine that the company was unable to provide protection for confidential information due to the fact that it was already available in some capacity.
Defining confidential information is important and generally, it does not include:
- information already publicly available
- widely used algorithms and code
- information rightfully in possession of the other party prior to signing this agreement
- information independently developed without the use of any confidential business Information
Breaking the law
The agreement may not be legally bound if it is asking the employee to partake in something unlawful: for instance, expecting them to stay silent regarding matters they are legally obligated to disclose.
Can you write your own non-disclosure agreement?
While it may be possible to write a basic non-disclosure agreement on your own, it is highly recommended to consult an impartial business solicitor to draft your NDA.
This is because these agreements are very sensitive in nature and any inaccuracy or omission in the language of the agreement can create a number of legal and financial risks for you as either the disclosing party or the receiving party.
Consulting with an experienced business solicitor who specialises in contract law can help ensure that the terms, conditions and obligations are clear, unambiguous and legally enforceable.
Non Disclosure agreements vs confidentiality agreements
An NDA is a legally binding agreement that prevents the unauthorised sharing of sensitive information and is particularly useful for business owners and startups looking to keep trade secrets during the course of a business relationship.
Confidentiality agreements are often preferred when two or more parties collaborate on a project, requiring the sharing of proprietary information.
The agreement ensures that sensitive and confidential details remain protected and that neither party can use the information for any unauthorized purpose.
Both parties must also agree to take reasonable measures to prevent the disclosure of any confidential information shared in the course of their collaboration.
A good commercial solicitor can help you to decide which is best for you.
Get help with your NDA
Non-disclosure agreements (NDAs) are critical documents that must be taken seriously when it comes to protecting a company’s confidential information.
It is essential that the language in the NDA is clear and unambiguous in order for a court to uphold any potential violations of the agreement.
Careful consideration should be taken by both parties involved when creating and signing an NDA, as there can be significant legal and financial implications if it is found to be unenforceable due to negligence or weak phraseology.
All provisions must have a legitimate purpose and should be limited in scope and duration in order to ensure effective protection of confidential information.
Additionally, special care should be taken when dealing with public knowledge or material disclosed with permission from all parties involved. Consulting a commercial solicitor prior to entering into an NDA is recommended in order to ensure all parties understand the terms, conditions, and obligations of the agreement.