Should You Use A Mutual or One-Way NDA? (2020 Update)
As a business owner, it's important to protect your confidential information in every context. Find out the difference between one way and mutual NDAs here.
Confidential information can make or break your business. It may be a trade secret or a game-changing idea. However, it may be just as important information like customer data and personal information. Regardless, as a business, you will want to protect this information. The question, of course, is how? The quickest and easiest form is an NDA, which can either be mutual or one-way. It’s important, however, to use the right one to make sure your information is protected properly.
What is a Non-Disclosure Agreement (NDA)?
An NDA is a type of contract and is a legally binding agreement between two parties. When a business carries out its operations there are employees, third parties, suppliers, investors and more. These people will all get access to information about your business that you will likely want to keep private. Whether it’s financial information, product releases or your plans for the business generally, a lot of damage can be done if this information gets released to the public. For example, your competitors may see that you’re expanding your business into a neighbouring country and decide to do exactly that.
Depending on your situation you’ll need an NDA for each party who becomes privy to important information. Furthermore, an NDA can also be called a confidentiality agreement as the terms are essentially synonymous.
The power of a mutual NDA usually lies with both parties. This occurs when one party gives over their confidential information. Then in exchange, the other party also provides confidential information. Therefore, in contract law the basic building block of consideration is satisfied. That is, something is being exchanged for something else. This means both parties are giving other confidential information and have access to the others confidential information. Furthermore, whenever there is an issue of confidential information, an NDA should be signed before the information is handed over.
ARC Pty Ltd wishes to hire an independent contractor. In order for the business to run properly, ARC will have to inform the contractor on their secret methods along with personal information of customers. Then in return, the contractor will also release the trade secret about how she processes the data along with some of her trade secrets. Both of these parties don’t want the information to get out into the public. As a result, they sign a mutual NDA.
One way NDA
The other type of NDA is a one way NDA. When this NDA is made, only one party shares confidential information. The point of using the NDA is so you have a legal right to sue. If you share information with either an unenforceable NDA or no NDA you are making yourself exposed. This is just one of many steps to protecting your information.
ARC Pty Ltd is seeking investors. However, the investors are going to want to know what makes this company so special and why they should invest. Therefore, ARC will need to disclose some of their trade secrets. Hence, the company will sign an NDA with the investor for the company to share the trade secret with the investor. This is an example of a one way NDA as the investor has no confidential information to share.
Choosing which NDA to use is a case by case situation. If you were trying to gain investors and you forced them to randomly hand over confidential information with a mutual NDA, you could turn them away. Likewise, they are unlikely to have any information you need. However, if you are working with third parties and other companies you may want a mutual NDA. Regardless, make sure your NDA is enforceable and legal.
Justin is a legal intern at Lawpath as part of the content team. He is currently studying a Bachelor of Laws and a Bachelor of Economics at UTS.