10 Things You Should Know About Non-Disclosure Agreements (2019 Update)
Non-disclosure agreements are one of the most commonly used (and misunderstood) documents used by businesses. Here are 10 key points to consider before using an NDA.
A Non-Disclosure Agreement (NDA) is one of the most popular and versatile documents that a business will use. Also known as a confidentiality agreement, an NDA will protect your business interests. They can be used in many instances, some of which include:
- Hiring employees
- Negotiating business contracts with other businesses
- Making pitches to potential investors
- Any other person or business who has access to company information
If you or your business will be disclosing confidential information to anyone else, it is always worth having an NDA. In this article we’ll discuss the 10 key things you’ll need to know to create and execute a Non-Disclosure Agreement.
Although a Non-Disclosure Agreement is one of the most important documents your business will use, it must be done the right way.
1. What it does
A Non-Disclosure Agreement (NDA) is used to safeguard a business’s confidential information. This document is used when one or both parties in a relationship wish to disclose confidential information. It ensures that the person or organisation who has access, does not disclose it to any third party without the consent of the business. Non disclosure agreements can also specify the terms under which the business shares information. If a party breaches an NDA, legal remedies are available such as an injunction or compensation.
2. Unilateral vs. Mutual NDAs
There are two types of NDAs – one way and mutual. The 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.
In a mutual NDA, the parties agree not to share the other’s information. This type of non disclosure agreement is generally used when two businesses share confidential information, such as in contract negotiations.
3. Defining Confidential Information
It’s crucial to know exactly what information you want your NDA to cover. Be specific and concise in defining what information is confidential. 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. Term of the NDA
The terms 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.
An NDA has 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. NDAs are only effective if signed
An NDA is an important weapon in deterring 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. Sign an NDA before you share confidential information
It 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 only rely on an NDA to protect your information
You 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.
An NDA can only be enforced if it is drafted properly, signed by both parties and reasonable. An NDA that isn’t enforceable won’t protect your information. Make sure that the terms are reasonable, clearly defined and signed by both parties.
10. Overseas jurisdictions
Make 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.
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Want more information? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
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.