What is a Non-disclosure Agreement?
A non-disclosure agreement is a contract that allows you to share confidential information with another person. That person cannot then share it with anyone else and can only use it for a permitted purpose. A non-disclosure agreement is also referred to as an NDA or a confidentiality agreement.
An NDA can be either one-way or two-way. In a one-way agreement, only one party to the agreement agrees to provide confidential information to the other. In a two-way agreement, both parties provide confidential information to each other.
Allowing the limited sharing of confidential information can be achieved by using an NDA, which is a standalone document. This can also be achieved by including a confidentiality clause in another agreement.When should I use it?
An NDA should ideally be entered into at the outset. It is commonly used by people when they want to discuss co-operation between their businesses, buying and selling a business and obtaining professional advice where the confidential information is particularly sensitive or there are no professional obligations of confidentiality. It can also be used in settling disputes to ensure that the details of any dispute remain private.
What confidential information can I protect?
Confidential information generally means any information that has commercial value or that has the quality of confidence and is imparted in a confidential way. This can come in many forms, such as customer or client lists, financial information, pricing, manufacturing and production processes, sales and marketing information, proprietary knowhow and details of a dispute.
Confidential information does not include any information that is already in the public domain or known by the recipient.
You might think that confidential information should be defined as widely as possible in your agreement to capture the maximum amount of information. In practice, however, what constitutes confidential information should be limited to what is strictly necessary. A very wide definition can in time become onerous and impractical. There is also a risk that a court will decide that information is not confidential if the definition is too wide and so the protection that you think that is in place is actually unenforceable.
What does it not do?
An NDA protects a person’s or business’ confidential information. It does not prevent anyone from whistleblowing or reporting a crime to the police.
How long does it last?
There is no maximum duration for an NDA. Nevertheless, in order to avoid any issues with its enforceability, the parties should agree a realistic and sensible duration based on how long the confidential information is likely to be sensitive. General commercial information will probably be confidential for a shorter amount of time than specific information such as a secret formula.
What happens when it terminates?
On termination, the parties can agree that all confidential information that has been disclosed must be either destroyed or returned to the person who provided it.
What if someone breaches the agreement?
There are remedies available if a party breaches the agreement, which are an injunction to prevent use of the information and damages for any losses caused by the breach. These remedies can be difficult to obtain and are not always effective. For those reasons, it is a good idea to take practical steps to reduce the risks of disclosure as much as possible, such as by limiting the number of people who have access to the confidential information.