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The Importance of Non-Disclosure Agreements

This week we sat down (virtually, of course) with our newly appointed Corporate and Commercial Solicitor, Hiten Patel to discuss what Non-Disclosure Agreements are and what you need to be aware of. 

Traditionally, Non-Disclosure Agreements have been put in place to prevent staff from disclosing confidential information about their jobs to new employers or to the press, They are typically found in Settlement Agreements but can also arise in other circumstances for example when two companies are entering into discussions regarding a merger or acquisition. 

Here Hiten explains the basic understanding of what goes into a Non-Disclosure Agreement. 

What is a Non-Disclosure Agreement (NDA)? 

A Non-Disclosure Agreement is a legal contract, where all the appropriate parties agree not to disclose any confidential or sensitive information except under specified circumstances as set out in the agreement. A Non-Disclosure Agreement will lay out what information is subject to confidentiality, for example, trade secrets and other valuable information that an organisation will want to protect. 

What Purpose does a Non-Disclosure Agreement Have? 

A Non-Disclosure Agreement is there to protect the reputation of the company as well as any confidential information being revealed to anyone other than those designated parties. When signing a Non-Disclosure Agreement, all parties are agreeing to keep items defined as confidential in the agreement secret. NDAs are also used when employees have access to confidential and proprietary information about a business during the course of their role.  

What Elements Make Up a Non-Disclosure Agreement 

  • Identifying the involved parties 
  •  This is usually a straightforward description of the designated people or organisations the confidential information can be shared with 
  • Outline of the information that is deemed to be confidential 
  • This defines what confidential information means. It is important that the nature of the confidential information is clearly defined: which can be valuable information such astrade secrets or customer lists which are important to keep out of the public domain. 
  • The scope of the confidentiality obligation by the receiving party 
  • This is frequently a two-part obligation on the receiver of the information – both to keep the information confidential, and not to use the information themselves. 
  • The exclusions from confidential treatment 
  • Non-Disclosure Agreements frequently set out exclusions to the confidentiality clause. This usually covers information that is already known to the recipient (or is already publicly known), or information that has been independently disclosed to the recipient by another party who is not bound by the Non-Disclosure Agreement. In addition, it should set out who the designated parties can disclose this information to, for example, their legal representatives. 

Common Examples of Non-Disclosure Agreement Use 

Non-Disclosure Agreement is commonly used in merger and acquisition discussions between organisations, between employers and employees to protect confidential and valuable information which the employee has access to and when using a service that has access to sensitive information. 

What can be Classified as Confidential in a Non-Disclosure Agreement? 

Anything already in the public domain cannot be deemed to be confidential and it is important that what the respective parties want to protect is clearly defined. 

Expert Advice on Non-Disclosure Agreements 

It is essential for anyone who requires the use of NDA’s including both employers and employees to seek independent legal advice before drafting an NDA or any agreements which have non-disclosure obligations. Many of these agreements have conditions which mean that if confidentiality is broken, and either party suffers a loss, the party that breached the agreement is required to indemnify the costs or in some cases, if any money has already paid, must be clawed back. Employers also need to know that these clauses are legally enforceable before asking employees to enter into these agreements. 

Hiten comes from a background of Commercial Law and Litigation. To discuss more with Hiten around Non-Disclosure Agreements or on any other legal matters, please contact Hiten here.  

 

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