Key Points About Non-Disclosure Agreements (NDAs)
- Non-disclosure agreements produce a confidential situation regarding specified information between two or more parties.
- A Non-Disclosure Agreement (NDA) may also be referred to as a confidentiality agreement.
- The NDA protects the information the parties share from getting into the hands of competitors.
- Non-Disclosure Agreements are commonly signed before discussions between businesses over potential deals or ventures.
- Employees are often required to sign NDAs to protect an employer’s confidential business information.
What Is a Non-Disclosure Agreement (NDA)?
A non-disclosure agreement establishes a relationship of confidentiality between two or more parties. It is a legally binding contract that establishes an agreement that any sensitive material passing between the signatories to the agreement cannot be made available to other parties.
When would you use a Non-Disclosure Agreement (NDA)?
Non-disclosure agreements (NDAs) are most commonly used when businesses are entering into negotiations with other businesses. They are usually one of the first documents agreed and signed by all sides as they allow the signatories to share sensitive information without the risk that the information may be leaked or used in a malicious manner.
Non-Disclosure Agreements in more detail
NDAs are regarded as a basic necessity in negotiations and are used on a commonplace basis by many businesses. As we have discussed already, NDAs are used when two companies (or more) enter into discussions about doing business together but want to protect their own interests as well as the negotiations surrounding the details of a deal. The wording of the NDA prevents all involved from releasing information regarding any business processes or plans related to the deal, or information they may see that relates to the wider activities of the other party or parties.
In certain business sectors it is common practice for businesses to require all new employees to sign an NDA. This is particularly true if an employee is likely to have access to sensitive information or data about the company.
There are other situations where NDAs are also commonly used in the business sector. They are often signed before discussions between a company seeking funding or where outside investors are seeking due diligence before investing their funds. In such cases, the NDA is meant to prevent competitors from obtaining sensitive data, business plans or information that is commercially valuable or sensitive.
What information is considered to be commercially sensitive?
There are many activities, data and information that a business may consider to be sensitive. An example of a document that would be considered to be sensitive is a sales plan or overall business strategy document for the coming twelve months. Other data that may have a great deal of value to competitors includes lists of current clients, services or products under development, or, if we take the example of a business such as Kentucky Fried Chicken, where there may be a recipe or process that is key to their success, then that information can break or make that business if it were to get into the wrong hands.
What to Include in a Non-Disclosure Agreement
NDAs, like many legal documents, can be altered to address an individual situation (as no deals are identical), however there are several key parts to an NDA that will need to be included:
- A definition of what constitutes confidential information in the matter that the NDA is to cover.
- Any particular exclusions from the confidentiality cover.
- A statement of the appropriate uses of the sensitive information so all sides can avoid accidental breach.
- How long the NDA is valid for.
- Any miscellaneous provisions, and last but not least,
- The names of the signatories to the agreement.
This basically covers issues such as who pays what fees, which jurisdiction the agreement is being signed in and any other peripheral matters that may affect how the NDA is drafted or can be enforced.
What happens if the Agreement is breached?
When an NDA is breached by one (or more) parties, the party who has had information protected by the NDA exposed, can seek court action to prevent any further disclosures and has the option to also sue the offending party for monetary damages.
Variations on a Non-Disclosure Agreement
Where a new employee is expected to sign a Non-Disclosure Agreement, it is often just binding on one side and not the other. This would be regarded as a non-mutual NDA.
In other settings the inverse of an NDA is frequently used such as when you agree for your data to be shared with other parties when you sign up to a new service agreement with a mobile phone provider or if an insurer needs to access your medical records should you be requiring life insurance.