Key Contact: Cristina Benezet
Non-disclosure agreements (NDAs) are fundamental to protecting a company’s vital confidential and proprietary information and are used regularly in the corporate and commercial world. They are an essential tool for managing the disclosure of sensitive business information both internally and to other parties, particularly in connection with exploring new corporate or commercial opportunities, strategic alliances, and financial arrangements.
When might you want to use an NDA in your business?
You may consider using an NDA when:
- entering into a new business relationship in which your will be sharing information relating to your business’s intellectual property;
- entering into discussions regarding an investment into your company;
- employing staff who will have access to confidential and proprietary information; or
- settling a dispute with a former employee or director.
However, there are a number of other different reasons you may want to enter into an NDA or may be asked by another business to enter into one. NDAs are not always stand-alone agreements, and many consist of non-confidentiality obligations incorporated into larger documents or contracts governing a wider arrangement, such as a contract of employment or a contract for the supply of services.
What should you consider when you are asked to sign an NDA?
The purpose of the NDA (or the non-confidentiality provision contained in an agreement) is particularly important, and the parties should always consider why confidential information is being disclosed in respect of a particular dealing or proposed dealing. The ‘purpose’ should be carefully defined to ensure that the information protected only relates to the dealing in question and does not inadvertently affect or jeopardise other current purposes or dealings between the parties. Also, if the purpose is drafted too narrowly, it could leave unprotected some of the confidential information disclosed between the parties which relate to the purpose in question.
You should also be mindful of the definition of ‘confidential information’. Again, such definition should not be too narrow or too wide so that it covers only the relevant information which the disclosing party or parties may wish to preserve. Furthermore, be aware that certain information may be confidential in nature (e.g. business affairs, technical information, trade secrets etc.) but may be classed as non-confidential within your NDA, for instance by reason of it becoming available to the public or it being already known to the recipient at the time of its disclosure.
The parties will also want to consider how long the agreement will be in place for. Typically, NDA’s last between 2 to 5 years in commercial dealings, but it is important to consider whether the duration is suitable for the purpose. The obligations of confidentiality may sometimes survive the termination or expiry of the agreement in order to offer extra protection to some or all of the confidential information disclosed during the period of the NDA.
When it is not suitable to use an NDA
NDAs have previously been in the spotlight in a negative way due to them being used to stop people speaking out about illegal or unethical actions of others. However, NDAs are not designed and should not be used to prevent the reporting of professional misconduct or potential crimes.
It is known of employees acting as whistle-blowers who are dismissed following their complaints about unacceptable practices or discrimination against, and harassment of, themselves and are offered compensation subject to an NDA forbidding them from disclosing the events complained about. Such conditions in an NDA may not be enforceable in law, although they may intimidate the former employee into silence.
Stand-alone NDAs are usually a starting point for discussion, but their purpose is not to impose obligations on the parties to either disclose any information or to enter into any commercial dealings. NDAs are often put in place to protect any information which is disclosed during the course of negotiations or discussions with a view to future trading or collaboration. Therefore, if the parties intend to enter into actual commercial relations, they may need to consider entering into a full agreement or combining an NDA with another contract to ensure that the purpose of the business arrangement is achieved.
Overall, NDAs can be an effective and indispensable tool when used correctly. However, one should always bear in mind NDAs do not afford guaranteed protection. Parties should give special consideration to the negotiation of the governing law and jurisdiction clauses and any legal remedies contained within the NDA’s, in case one or both parties find themselves in need of resorting to the courts to seek enforcement of the provisions contained within the NDA.
If you have any questions on confidentiality agreements or would like any assistance with the preparation or review of a confidentiality agreement, please contact our commercial team.