When Should I Use an NDA in England?

It is integral to protect your company’s confidential information. As such, your business may benefit from using a non-disclosure agreement (NDA). An NDA can help protect the most sensitive information and prevent another person from disclosing it without your consent. Such agreements can be used in employment contracts or when supplying information to third parties such as contractors, potential investors or financial advisors. This article will explain when and how your business can use non-disclosure agreements to ensure it adequately protects its confidential information against third parties.

What is a Non-Disclosure Agreement?

This written contract identifies when another party cannot use or disclose your confidential information to others. Many people assume non-disclosure agreements apply to employees only. While it is true that confidentiality clauses are common within employment contracts, they may also be used in other business relationships. 

For this article, we will consider how your business protects sensitive information that passes to third parties, such as contractors, advisers and other companies. Confidential information and sensitive information include data that would harm your company if released into the public domain. Therefore, it does not include any information already in the public domain.

Why Do I Need a Third-Party NDA?

Some readers may question why their business may ever disclose confidential information to someone outside their organisation.

However, in the course of running your company, you may need to:

• use an accountant or tax adviser;
• provide design information to a manufacturer;
• provide financial figures to retailers;
• obtain the assistance of a financial adviser; or
• pitch products to businesses, potential investors or retailers.

What Does an NDA Do?

A non-disclosure agreement usually defines which information your company classes as confidential in nature. It will then constrain the third party by:

• limiting ways they can use or record that information;
• limiting the circumstances in which they cannot pass on or disclose that information to others; and
• giving rise to a right to request them to return (or destroy) the information upon any future request.

What if the Other Party Refuses to Sign an NDA?

Some companies, advisers or investors refuse to sign NDAs as a matter of course. In this scenario, it may be worth considering offering them a ‘mutual’ non-disclosure agreement.  This document will confirm that your company will keep their information confidential and within set limits, and they will do the same for your business. Additionally, offering mutual non-disclosure agreements can sometimes build trust between the parties and make NDAs appear less aggressive and more balanced.

Let us consider a quick example below.

Example

Suppose your business is doing well but can benefit from external investment.  A well-known, reputable investor approaches you. Initial talks go well, and they ask you to pitch the company to them. Because your planned presentation involves confidential information, you ask them to sign an NDA, but they make it very clear that they will never sign one.

You need to weigh the benefits against the risks of pitching to the investor. If the potential investment would be greatly beneficial to your company, the risk of them learning some confidential information may be worth it. However, suppose you have not obtained a patent on a new invention. Instead, it would be a trade secret. Hence, it could prove risky to disclose information about it. In some circumstances, you could potentially lose the ability to obtain a patent for that invention in the future. If the business deal is of high value and high risk, you should consider obtaining legal advice before acting.

Key Takeaways

Disclosing confidential information outside your company can be unavoidable in certain situations. Therefore, it is a case of limiting information spread as far as possible and seeking third parties to sign an NDA before providing them with the information. Where a party refuses to sign, you may suggest a mutual NDA or weigh up the risks and benefits of disclosing confidential information without any agreement in place. 

If you need help with non-disclosure agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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