Non-disclosure agreements (‘NDAs’) or confidentiality agreements have featured prominently in the media recently, with high-profile individuals getting others to sign them to mitigate the risk of reputational damage. But NDAs are about more than gagging those who may disclose one’s sordid secrets. They are a vital tool for individuals and businesses who need to share confidential information with another, but who don’t want that information being made public. In this short piece, we explore what NDAs are, why they are used and what are the most common types. Finally, we finish by offering some practical advice on drafting NDAs so that they achieve their purpose and are likely to be legally enforceable.
What are NDAs?
An NDA is a legally binding agreement between two or more parties, whereby confidential information outlined in the agreement is prohibited from being disclosed by one or more of the parties.
Why are NDAs used?
NDAs are principally used for protection. The disclosure of trade secrets, for example, could cause a business economic loss or its rivals to gain a commercial advantage in the marketplace. The disclosure of an unpatented idea could result in someone else registering the idea as their own. Similarly, the divulgence of sensitive, personal information may cause someone stress, humiliation or damage to their relationship. In each instance, protection from harm, whether economic, mental or physical, is the purpose for looking to the law, and NDAs are a practical means of legally giving that protection.
Types of NDAs
There are two main types of NDAs: one-way NDAs and mutual NDAs. One-way NDAs, the most common form, prevent one party to the contract from disclosing confidential information about the other. Mutual NDAs, by contrast, refer to agreements between parties not to disclose each other’s confidential information. The most common type of the latter arises in the employment arena, where an employee and employer may both agree not to disclose confidential information about each other.
Considerations when drafting NDAs
Given that NDAs are about protecting individuals from harm caused by the disclosure of confidential information, it is imperative that they are well thought through and drafted. An ill-conceived and/or loosely worded NDA may result in it not achieving its purpose of offering vital protection.
Accordingly, when drafting an NDA, it is important to consider the following:
- What is the purpose of this NDA and to whom will it be applied?
- What is the confidential information that you want protecting and when can it legitimately be used by parties to the NDA?
- How long will the NDA last for – 3 to 5 years or perhaps longer?
- Does the NDA only apply to a specific geographical location or is it global?
- Is there any legislation that will invalidate the purposes of the NDA?
- Is a one-way NDA sufficient or would a mutual NDA protecting the confidential information of both parties be more appropriate?
- What jurisdiction should govern the agreement if the parties are based in separate countries.
For an NDA to be legally enforceable, the following steps should be taken:
- The ‘confidential information’ covered by the NDA should be defined clearly and set out in detail.
- The purpose for which the party/parties can use the confidential information should be tightly drafted.
- The agreement should expressly state it does not prohibit an individual from disclosing information that is already in the public sphere, that is required to be disclosed by law or that is classified as information pursuant to the Public Interest Disclosure Act 1998
- Consideration of whether the NDA should be executed by deed or not. This is quite common in relation to one-way NDAs.
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