What are NDAs and their benefits?

Non-disclosure agreements, commonly referred to as NDAs, are written contracts where the parties agree not to divulge certain confidential material that has been shared with them. This can be particularly useful when an employee is leaving the company; it adds protection against them using the information in their new roles. For business owners, it is one of the best ways to make sure confidential information they wish to protect, such as operational activity, is safeguarded. An NDA cannot provide an absolute guarantee that an individual will not disclose the knowledge they have, although it does set out the legal consequences if they do.

There can be a tendency for business owners to want to lockdown protected information as stringently as possible. But going too far risks the agreement being potentially unenforceable, and if this happens, then it has the same effect as not having an agreement at all.

What is covered by an NDA?

Parties should consider whether the NDA should be mutual - used where both parties are giving out confidential information, or one-way (only applies to one party). For example, if one party provides information about themselves to a third party to enable them to provide a quote. What type of agreement is suitable will depend on who is disclosing the confidential information, and to whom.

What should be included in an NDA?

Basic NDAs should include:

• A definition of the confidential or protected information that the NDA wishes to protect.
• The full names of each party to the agreement.
• An agreement that the individual does not divulge the confidential information.
• A stipulation that the confidential information can only be used for the purposes specified within the NDA.
• Any reason or purpose the individual is able to disclose the information and the people to whom they are permitted to disclose it to. This could include  entering into direct non-disclosure pacts with sellers or agreeing to be liable directly for losses arising from disclosing information in an unauthorised way.
• How the information is to be held when in use.
• How the information is to be disposed of following completion of the work or end of the project.
• The duration of the NDA. Generally speaking, the agreement will be drafted so that the duty of confidentiality ends on the expiration of a fixed period or completion of a particular project. If the agreement lasts too long, it can be anti-competitive, but what is an appropriate duration will be different in each case.

What can an NDA not cover?

An NDA cannot prevent an individual from either whistleblowing or reporting a crime. They also cannot be used to prevent or cover up reporting of harassment, discrimination or to mislead another. There may be circumstances where the law requires the information to be disclosed, regardless of what is stated within the NDA. For example, in a police investigation. If the NDA is not drawn up to deal with these situations, it can void the agreement.

Enforcing NDAs

The available remedies for breaching an NDA include:

Injunctions

An injunction is particularly effective if someone’s intentions are discovered before they disclose the confidential information. Courts can also order interim injunctions to prevent someone misappropriating or misusing protected information whilst waiting for a full hearing to take place.

Damages

The sum awarded is achieved by working out the loss the disclosure of the information to a third party has caused to the business. If this concerns data sold to third parties, for example, the measure of damages is calculated as the market value of the information between a willing seller and buyer.

Benefits of NDAs

• It establishes employee or third party expectations and clearly sets out which information is confidential, as well as the consequences for any violations. A detailed and well-written NDA also gives employees important guidance in relation to handling trade secrets.
• It can help protect trade secrets or a business’s intellectual property and direct circumstances when this information can be shared. For example, a company may need to share a trade secret with an outside third party they do business with. If the third party signs an NDA, then the secret remains protected. Trade secrets are protected in themselves provided they remain confidential. In terms of intellectual property, many IP rights need to be registered first in order to be protected.
• Gives the business owner additional legal recourse where confidential information is disclosed by pursuing remedies prescribed under the NDA.
• The expiry of the NDA does not necessarily mean the information falls out of being confidential. It can still be covered by extending the duration of the NDA or by the common law approach of confidence. However, it is clearer if there is a specific provision about this occurrence in the NDA.