Non-disclosure agreements (NDAs) seem to be on the rise in more and more commercial transactions, including but not limited to business sale and investment contexts. We are also seeing them used in outsourcing a particular service or operation or property matters.
We thought it would be useful to look these and whether they are worth using.
Broadly, NDA’s tend to be used in any matter where information is involved that needs to be kept private, plus where the party providing that information to others wishes to regulate its treatment.
The whole point of NDA’s then is to seek to protect commercially sensitive information.
The key thing here is that the NDA should help highlight that the information defined is confidential and must be treated confidentially.
NDA’s should then always be put in place before any disclosure of confidential information.
The risk otherwise would be that the confidential information is not protected before it is disclosed to, or exchanged with, any other parties.
Before considering if an NDA is required, the first question should be to be sure as to what information is disclosed and how confidential this information actually is?
This should include being clear about what the actual consequences could be if it is not kept confidential.
As a rule, NDAs are usually drafted very much in favour of the party drafting the document. However, any NDA is at its heart, a commercial agreement like any other though, so it is really important to seek to use your bargaining power to try and maximise your position.
The end goal will be a well-drawn up NDA, which will provide contractual protection where confidential information is to be disclosed as well as remedies where any such information disclosed is not used in the way that it should be.
NDAs can be either unilateral (with one party disclosing information and the other receiving it) or mutual (with both parties disclosing information to and receiving information from the other).
They will also define in detail what is meant by ‘confidential information’ and what the information recipient is permitted to do with the confidential information disclosed to it. This part will usually have certain exceptions provided for to allow for disclosure of confidential information in certain limited circumstances (for example, where required by law or to employees or advisers who need to know it) – NDAs usually always allow for any disclosures that are protected by law that are reportable matters to law enforcement or regulators.
The shelf life of an NDA is vital to agree – this can vary widely depending on the nature of the information to be provided and its value in the context of the industry it relates to.
NDAs also usually include provisions preventing the information recipient from competing with the disclosing party’s business and from poaching their staff or clients. The key point here is that these provisions will only be enforceable to the extent that they lawfully protect legitimate business interests – which will mean that they should be limited to what is reasonable in respect to both duration and geographical area.
Other commercial provisions are sometimes also included in NDAs for convenience; for example, a lock-in clause or costs clause and it can be a useful place to set out these and other expectations.
The best protection is, of course, to not disclose confidential information at all unless it is necessary to do so. However, where disclosure of confidential information is required, you should take all practical measures to ensure that the confidentiality of any information disclosed is adequately protected – NDA’s if properly pulled together can be a good medium both for this and for setting out any other early expectations.
Please drop us an e mail or call if you need any further details or assistance and stay safe and well.