Got a secret, need to keep it: Understanding non-disclosure agreements

Most people associate Non-Disclosure Agreements (NDAs) with celebrities and high-profile individuals, but they also play an important role in the commercial world.

Businesses regularly share valuable information with employees, investors, suppliers and potential buyers. An NDA helps ensure that sensitive information remains confidential and is not disclosed or misused.

While NDAs are often signed before information is shared, parties can also agree to a confidentiality arrangement after information has already been disclosed. This is commonly known as a retrospective NDA.

What is an NDA for businesses?

A commercial Non-Disclosure Agreement is a legally binding contract designed to protect confidential business information.

The agreement creates an obligation on one or more parties to keep certain information private and prevents them from sharing or using that information without permission.

NDAs generally fall into one of three categories:

• Unilateral NDAs: One party discloses confidential information to another.
• Mutual NDAs: Both parties exchange confidential information and agree to protect it.
• Multi-party NDAs: Three or more parties are involved, with at least one party disclosing protected information.

Confidential information covered by an NDA may include trade secrets, financial data, business plans, intellectual property, customer information and proprietary processes.

Where an NDA is breached, the affected party may have the right to pursue legal remedies, including claims for damages or injunctions to prevent further disclosure.

When are business NDAs used?

Businesses use NDAs in a wide variety of situations where confidential information needs to be protected.

• Discussions with Investors: Companies seeking investment may need to share financial information, growth plans or commercially sensitive strategies. An NDA can help give businesses confidence that this information will remain confidential.
• Employee Relationships: Employers often use confidentiality clauses and NDAs to protect sensitive business information. This can include client databases, pricing structures, internal procedures and proprietary technology.
• Protecting Trade Secrets: Businesses that rely on unique manufacturing methods, formulas, designs or processes frequently use NDAs to help prevent competitors from gaining access to valuable information.
• Mergers, Acquisitions and Business Sales: During the sale or purchase of a business, significant amounts of confidential information are exchanged. NDAs can help protect both parties throughout the transaction process.

When can’t an NDA be used?

Although NDAs can be an effective way of protecting sensitive business information, they cannot be used to override an individual’s legal rights or obligations.

For example, a confidentiality agreement cannot prevent someone from reporting criminal activity to the police, making a protected whistleblowing disclosure, cooperating with a regulatory investigation or raising concerns with a relevant professional or industry regulator.

In addition, information that is already publicly available is generally unlikely to benefit from NDA protection.

Businesses should therefore ensure that any NDA is carefully drafted, proportionate and compliant with current legal requirements.

How can we help?

An NDA can be a powerful tool for businesses to protect their information from being leaked. However, it is imperative to ensure that they are used within the bounds of the law.

Our team are here to advise on the drafting and implementation of an NDA to ensure that your business is protected.

For support with an NDA, get in touch with our team.

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