10 Things to Know About Non-Disclosure Agreements
Non-Disclosure Agreements (NDAs) are legal documents which prevent one or both parties from releasing confidential information.
Non-Disclosure Agreements (NDAs)Non-Disclosure Agreements (NDAs) are one of the most popular and versatile documents that a business will use. Also known as a confidentiality agreement, an NDA will protect your interests. NDAs come in the form of an agreement or deed, where both parties promise to abide by its terms. Some of the most common uses are:
- After an out-of-Court settlement of a legal dispute
- When hiring employees
- During contract negotiation with other businesses.
- Making pitches to potential investors
1. What Non-Disclosure Agreements (NDAs) doA Non-Disclosure Agreement (NDA) safeguards confidential information.It ensures that the person or organisation who has access does not disclose this information to any third party without your consent. What if you found that a potential investor has learned your trade secret, and then gone on to reveal your secret to one of your competitors? This is exactly the type of scenario an NDA can help you avoid.
2. Unilateral and mutual NDAsThere are two types of non-disclosure agreement – one way and mutual.
One wayA one way NDA is the more common type of NDA. In a one way NDA, the business discloses the information to another party and the party that receives the information agrees not to disclose the information. A one way NDA has to also serve the interests of the non-disclosing party. For example, if you have a potential investor sign an NDA, keeping this information confidential will also serve their interests if they invest in the business.
MutualIn a mutual NDA, the parties agree not to share each other’s information. This type of non disclosure agreement is generally used when two businesses share confidential information, such as in contract negotiations of when doing business together.
3. Defining confidential informationIt’s crucial to know exactly what information you want your NDA to cover. You should be specific and concise in defining what information is confidential. For example, if you’re looking for investors for a patented product, you need to account for the technology or features in the product that you want to protect. Having a broad definition will result in ambiguity and there have been instances where NDAs have not been enforced by the Courts because the definition of confidential information was too broad. When it comes to protecting your information, it’s important to leave no stone unturned, but to also be realistic about what information is confidential.
4. Length of NDAsThe length of NDAs can vary – anywhere from a few weeks to a few years. A common term for an NDA is anywhere from one to three years. If your term exceeds this, a Court may not enforce it as it may be deemed to be excessive. An NDA cannot be infinite, so it is important to specify the term you want the NDA to be active for. For example, if your business is in the midst of negotiating with potential investors, have the term of the NDA active for the amount of time you will be raising capital for. In the case of an employee, an NDA can be active during the course of employment and for a certain amount of time after, for example, 6 months.
5. ReasonablenessNon-Disclosure Agreements (NDAs) have to be reasonable in order to be effective and enforced. In determining whether your NDA is reasonable, Courts will look at the term of the NDA, how confidential information is defined, what burden it puts on the other party (it has to be fair), and whether it is difficult for the other party to comply with. If the NDA is found to be unreasonable, it won’t be enforced.
6. The importance of signing NDAsAn NDA is an effective way to deter people from disclosing confidential information. However, an NDA is no use against a business or individual that has not signed up to its terms. Before you disclose any information think about who will have access to confidential information, make a list of all the people and make sure that NDA’s are signed by everyone.
7. Be preparedIt is important that you get your NDA in writing and signed by both parties before any confidential information is shared. This way, both parties know their duties and privileges. Information shared before the NDA is signed may not be captured under the agreement. Further, you may want to have your agreement reviewed by a commercial lawyer.
8. Don’t solely rely on NDAs to protect yourselfYou should take additional steps to protect your confidential information. This may involve operating on a need to know basis or setting up information security policies. Physical protection of information should not be ignored – locking doors and filing cabinets goes a long way in protecting your confidential information. Further, accidental disclosures of information can happen, for example if there is a data breach. It is important to take all other necessary precautions to protect your information and to keep your information and security systems updated.
9. EnforceabilityNDAs are only enforceable if they are drafted properly, are reasonable and signed. Put simply, an NDA that isn’t enforceable won’t protect your information. If your NDA is enforceable, then you can receive an injunction (to stop the information from being released). You can also be financially compensated.
10. Overseas jurisdictionsMake sure your NDA clearly states where it applies. If a party to your NDA is overseas or even in another state jurisdiction, make sure you account for this. For example, if your business creates an NDA with a company based in the United States, you may have trouble enforcing it if a breach has occurred there.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.