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A non-disclosure agreement (NDA) is a type of legal agreement you might use when handling sensitive information. In particular, business owners often use NDAs when discussing working with a new service provider. This article will outline non-disclosure agreements and some of the different types of non-disclosure agreements.
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What is a Non-Disclosure Agreement?
A non-disclosure agreement is a binding legal agreement. The effect of a non-disclosure agreement is to prevent a business you are dealing with from disclosing a confidential piece of information to another party. If that person or business discloses confidential information, they would be in breach of your agreement. Consequently, you could bring a claim against them for breach of contract. When bringing legal action, a court may order the breaching party to pay compensation or make orders to stop them from continuing to share the confidential information.
Typically, you would see confidentiality clauses in:
- employment contracts where you do not want your employees to share sensitive information;
- settlement agreements where you do not want the other party to share the terms of your agreement; or
- in a standalone legal contract where you do not want the other party to share confidential information that is valuable to your business.
Non-disclosure agreements are commonly standalone documents where two parties decide whether to work together and pursue a business relationship. For example, you might be a software developer and prospective clients come to you for a quote. In this case, they may ask you to sign an NDA so you do not share their business idea with anyone else.
Different Types of Non-Disclosure Agreements
There are two key types of NDAs: unilateral or mutual NDA.
A unilateral NDA, or a one-way NDA, is where one party discloses information. A one-way NDA tends to strongly favour the party disclosing confidential information and only protects them. A mutual NDA, on the other hand, is used where both parties are disclosing confidential information. Mutual NDAs tend to be more balanced documents because they protect both party’s rights. If the NDA is unilateral, you may need to use a deed to make your agreement enforceable.
Further, you will have the power to choose what type of information is part of your NDA. It can protect information that you mark specifically as ‘confidential.’ Equally, it can also protect information you share in a meeting, especially if you are discussing company secrets.
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When Should I Use a Non-Disclosure Agreement?
You should use an NDA where you have confidential information that you do not want a receiving party to share with a third party. In some cases, you may wish to restrict information from the public domain on the whole. In other situations, it may be intellectual property from competing businesses. These types of situations are suitable for an NDA. However, bear in mind that many NDAs are limited in how long they last.
For example, many NDAs have a three to five-year limit. After that time limit, the other party to the agreement will be free to disclose the information. Similarly, if the protected information reaches the public domain (for example, you launch your business idea publically), the NDA will not apply to that confidential information. Likewise, you will no longer be in a confidential relationship with the person that you have an agreement with.
Whistleblowing occurs when an employee reports certain types of wrongdoing at the workplace, and the wrongdoing is in the public interest in some way.
Benefits of Using a Non-Disclosure Agreement
Using an NDA for your business can be beneficial in many ways. The most important benefit is legally protecting your business’ confidential information. When operating a business, you may often need to engage with third parties and share confidential information. Having an NDA ensures you protect any shared information, such as trade secrets or intellectual property. This is crucial to avoid a situation where a competitor may benefit from knowing a unique aspect of your business for profitable purposes.
Parties who enter into an NDA know that a breach of the agreement may result in legal action against them. Breaching the agreement can lead to expensive litigation, which can result in further damages (monetary compensation). The significant financial penalties make entering an NDA advantageous, as it deters the parties from breaching the contract.
Additionally, providing clarity on confidentiality terms is another advantage, as the NDA can clearly outline the terms and conditions under which confidential information can be disclosed. This can include the duration of the agreement, the information that it covers, and any limitations to the use of the NDA.
It is crucial to seek advice from a contract solicitor who can create a bespoke NDA that suits your business. This will provide your business with maximum protection and minimise any legal risks that may arise in the future.
Key Takeaways
As a business owner in England and Wales, you may use confidentiality agreements or non-disclosure agreements (NDAs) to protect certain confidential information as part of your business. Often, non-disclosure clauses stop employees or contractors from spreading information, such as details of a new product you are working on, new ideas within your business, and intellectual property developments you oversee. Further, you can also use non-disclosure clauses to stop a person from talking about the details of a settlement agreement, among other things.
For assistance drafting non-disclosure agreements for your business, 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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