Do I Need Both an NDA and Confidentiality Clauses in My Business’ Contracts? 

Your business should take steps to protect its confidential information in its business relationships. Your company may already have robust confidentiality clauses embedded in your contracts to protect this information. In this case, you might wonder whether you also need a separate confidentiality agreement or a Non-Disclosure Agreement (NDA). Business owners might encounter this dilemma, questioning if they need to implement an NDA to protect confidential information when their existing contracts already contain confidentiality provisions. This article will explore the difference between NDAs and confidentiality clauses and some key considerations on whether you need an NDA if your agreements already cover confidentiality.

Why Should You Protect Your Business’s Confidential Information?

Your business’s confidential information is a valuable asset that needs strong protection. Safeguarding this information can help protect your information from misuse and help you maintain your competitive edge in the business market.

Confidential information (including commercially sensitive information, trade secrets, know-how, and customer or supplier lists) can be at significant risk if disclosed without authorisation. To reduce the risk, your business can use legal agreements and terms such as NDAs and confidentiality clauses to control the use of this information by third parties. 

What Is an NDA and How Can It Help Your Business?

An NDA is a contract that helps protect confidential information. For instance, it can include provisions preventing third parties from sharing or misusing confidential information your business shares with them. If a third party breaches the terms of your NDA, your business may be able to seek remedies, e.g., an injunction to stop further disclosure.

NDAs are particularly useful when your business wishes to discuss potential deals or collaborations before signing a formal commercial agreement with a third party. For example, if your business needs to share sensitive information with an investor or partner, an NDA can help protect you during these early discussions. 

What Are Confidentiality Clauses?

Confidentiality clauses are provisions your business can include in broader commercial agreements (such as service contracts with your customers or suppliers). These clauses typically specify a range of obligations for the receiving party with whom confidential information is shared and detail rules on its use. These clauses can be one-way or mutual and generally define what is considered confidential, limit the use of that information, and specify the consequences of any unauthorised disclosure. 

Unlike standalone NDAs, confidentiality clauses form part of existing contracts as a critical term. Depending on the nature of the project and the information risk, your business may negotiate these clauses heavily – for instance, when a client shares sensitive information with your company and is extremely worried about confidentiality.

Does Your Business Need an NDA if You Have Confidentiality Clauses?

The answer depends on your business’s specific circumstances and information risk. In many situations, a well-drafted contract with robust confidentiality clauses, particularly if these clauses are broad and comprehensive, may be enough to protect your business’s confidential information. 

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If the confidentiality clause in the main contract provides sufficient protection, a separate NDA may not be necessary. Additionally, you should note that negotiating a separate NDA could complicate your discussions and delay project progress.

However, a separate NDA may be sensible in specific scenarios and offer commercial protection. For example:

• if your business is negotiating with a potential partner or investor and needs to share information before a formal agreement is signed, an NDA can give you peace of mind and protect your information;
• sometimes, especially cautious clients might insist on an NDA even if your contract already includes confidentiality clauses (e.g. where your confidentiality clauses in your agreement are short or limited). Accommodating these requests could build trust and strengthen relationships; and
• when dealing with highly sensitive or valuable information, an NDA can be another layer of protection. 

How Can Legal Advice on NDAs and Clauses Help Your Business?

Seeking legal advice can be invaluable when protecting your business’s confidential information. A commercial lawyer can help you gauge which terms you need and why based on your specific information-sharing scenario. Additionally, a lawyer can help draft and tailor your agreements to ensure they remain watertight, enforceable, and compliant with legal rules. 

If you are unsure whether you need an NDA or if confidentiality clauses will suffice, you can contact a lawyer for specific guidance. 

Key Takeaways

Protecting your business’s confidential information is vital and can help maintain your competitive advantage. NDAs act as standalone agreements to safeguard information, whereas confidentiality clauses form part of broader agreements. For many businesses, well-drafted confidentiality clauses may suffice. However, separate NDAs can be helpful or necessary in certain situations. A commercial lawyer can help guide your business on what is appropriate for your circumstances.

For advice on protecting your confidential information, LegalVision’s 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.

Frequently Asked Questions 

1. What is an NDA?

An NDA, or Non-Disclosure Agreement, is a contract that prevents parties from disclosing or misusing confidential information shared with them. It is helpful to put one in place before formal agreements to protect confidential information during negotiations.

2. What are confidentiality clauses?

Confidentiality clauses are provisions within a broader contract that define obligations to keep certain information confidential. They do this by restricting the use of confidential information.