A Non-Disclosure Agreement (NDA) – also called a confidentiality agreement – is a contract that creates a legal obligation for one or more parties to keep certain information confidential. NDAs are very common in business whenever sensitive information is shared with someone outside your company. Here’s what you should know:
- Purpose of NDAs: The main goal of an NDA is to protect confidential business information from being disclosed or misused by the recipient. This could include trade secrets, customer lists, business plans, financial data, product designs, formulas, manufacturing processes, or any information that is not public and gives your business a competitive edge. By signing an NDA, the recipient agrees not to reveal or use the information for any purpose other than what’s permitted in the agreement. If they do breach the NDA, you would have the right to take legal action for that breach. NDAs can also specify how long the secrecy must be maintained (e.g. 2 years, 5 years, sometimes indefinitely for trade secrets) and can clarify things like “permitted disclosures” (for example, to the recipient’s lawyer or accountant who also must keep it confidential).
- When NDAs are Used: You should consider using an NDA in any situation where you’re sharing valuable secret information with someone outside your organization. Common scenarios include: talking to potential investors or venture capitalists about your business’s financials and strategy; discussing a new invention or business idea with a potential partner, manufacturer, or licensee; giving a contractor or freelancer access to your client information or proprietary processes; or negotiating the sale of your business (where a prospective buyer needs to review your records). In all these cases, an NDA can be signed before you reveal the sensitive info. That way, the other party is contractually bound to confidentiality from the outset. For employees and contractors within your business, confidentiality clauses are typically built into their employment contracts or consultant agreements, rather than a standalone NDA, but the effect is similar – they’re obligated not to steal or divulge your trade secrets.
- Key Terms in an NDA: A basic NDA will define what information is considered confidential. It’s wise to define it broadly (e.g. “any business or technical information not publicly known that is disclosed by the company”) and also mark particularly sensitive documents as “Confidential” when you hand them over. The NDA will state that the recipient must use the information only for a specific purpose (for instance, evaluating whether to invest in your company) and not for their own benefit. It will prohibit the recipient from sharing the info with anyone else, except as allowed (perhaps allowing disclosure to certain persons who also agree to confidentiality, like the recipient’s lawyer). Also, NDAs often clarify exclusions – for example, information that is already public or that the recipient already knew not through a breach doesn’t count as “confidential information.” Finally, NDAs specify the duration of the confidentiality obligation and that all copies of documents should be returned or destroyed upon request.
- Enforceability and Limits: NDAs are generally enforceable in the UK as long as they are reasonable and not against public policy. Courts will enforce NDAs by awarding damages for losses caused by breach, and sometimes by injunction (an order preventing further disclosure). Keep in mind that an NDA cannot be used to cover up wrongdoing – for example, an NDA can’t legally stop someone from reporting a crime or whistleblowing illegal activities. But for legitimate business secrets, NDAs are a crucial tool. One thing to note: if you are the recipientasked to sign an NDA (for instance, a potential client wants you to sign one before they share their project details), read it carefully. Make sure it doesn’t unfairly restrict you (for example, be wary if it prevents you from using any knowledge in your own business that you develop independently, or lasts excessively long).
- Using Templates: NDAs are relatively straightforward contracts, and many businesses use template NDAs regularly. British Contracts offers a solicitor-reviewed NDA template that can be adapted to your needs. This can save you time while ensuring all the standard protective provisions are included. Whether you use a template or have a lawyer draft one, always make sure the NDA covers the specific context of your situation (e.g. name the correct parties and purpose) before you sign or send it out.
In summary, an NDA is a simple yet powerful document to safeguard your business’s confidential information during discussions and collaborations. Whenever you’re about to say “Here’s how we do X” or share any non-public data with an outside person or company, think NDA – it could be the only thing standing between your secret sauce and the public domain. Visit our homepage to view the highly competitive fixed-fee services offered by British Contracts to get the perfect NDA for you and your business.