Non-disclosure agreement

A non-disclosure agreement is also known as a confidentiality agreement or an NDA. A party can use this form of contract to protect their confidential information from disclosure.

Click here to access our one-way non-disclosure agreement template. 

When to use a non-disclosure agreement?

In principle, a non-disclosure agreement can protect any kind of information. However, typically, a party uses one to safeguard their business' inventions, patents, client lists, financial matters, and other secrets. All types of parties can negotiate a non-disclosure agreement. They are valuable tools for governing the relationship between two private individuals, an employee and an employer, two companies, or a company and an investor.
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A non-disclosure agreement is always a good idea if a party gives others access to information that could harm their business if released to the public. It also makes sense if a party wants to avoid another party benefitting from the information it shares. For example, a party transferring its business may need to enter into a process of due diligence and a letter of intent. It would be prudent in this instance for the transferring party to insist on a non-disclosure agreement. So, if the deal falls over, the agreement will protect all confidential information and trade secrets that the business shares during the due diligence process.

A non-disclosure agreement is also an excellent measure for business partners who wish to formalize the trust between them.

A non-disclosure agreement only protects confidential information

It is important to note that a non-disclosure agreement only protects information that is not already public. Therefore, a party cannot enforce an agreement about information already in the public domain. However, it can still enforce the agreement about other information that has not already been publicly disclosed.

How does a non-disclosure agreement work?

A nondisclosure agreement should delineate the responsibilities and obligations of both parties concerning the confidential information. As a result, it will outline clearly what constitutes confidential information as well as the required behavior of the signee to keep that information secret. It also details how the confidential information is classified and assigned ownership to the discloser. 

For example, employee contracts outline who owns the intellectual property if an employee creates it under a company's employment. Most importantly, they detail how long the NDA should last and what happens when the agreement ends. 

Advantages of a NDA

The most significant advantage of an NDA is the ability to keep confidential information just that—confidential. Should that information be leaked somehow by a person who has signed an NDA promising to keep it confidential, they can face legal consequences. As a result, companies and entities can keep critical information secret to protect all assets under their control. 

Patents and procedures, for example, can remain unique to the companies that own them. In doing so, companies can be confident in what information they disclose to their employees so that they can use that information efficiently and effectively. Suppose companies have to withhold information from their employees due to fear of information leakage, yet that information can help them do their jobs better. In that case, employees' capabilities are diminished, affecting a company's success. 

Key elements to include in a non-disclosure agreement

There are no formal requirements for a non-disclosure agreement except that both parties must sign it. As such, there is great freedom in drafting an agreement. A well-drafted non-disclosure agreement will include the following elements:

Term or duration

An agreement should specify the term or duration of the contract. How long do the parties intend it to last? By being specific about the agreement's duration, a party keeps its information confidential for a sufficient period while ensuring it is not bound by the agreement forever.

Confidential information

An agreement should also define and describe the nature of the information it relates to. It is a good idea to be as precise as possible about this. The definition of confidential information should spell out not only the categories of the confidential information but also the formats in which the information can appear—for example, are emails, conversations, hand-written notes, and letters included?

An agreement should also spell out which information is excluded from confidential treatment, such as information already known to the receiving party or in the public domain. A well-drafted contract specific about what is and is not confidential will help avoid later disputes over interpretation.

Remedies for breach

In addition, a non-disclosure agreement should describe what happens if the parties do not comply with their obligations under the agreement. The consequences of non-compliance will typically be in the form of remedies or compensation. The parties often pre-agree to a fair remedy and include this in a non-disclosure agreement. This is because the costs of a breach can be hard to calculate or prove. The pre-agreed remedy can be an amount of money, for example. Or it could be an amount corresponding to the damage caused by the breach.

Dispute procedures

Finally, a non-disclosure agreement should describe the procedures governing a dispute. For example, a contract may stipulate that a court must resolve the disagreement. Or it may prohibit legal proceedings and stipulate settlement through arbitration. A non-disclosure agreement should always specify the jurisdiction where a dispute will be resolved.
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Remember, a fundamental element of all contracts is that they are enforceable; otherwise, they are pointless. This means that every contract should provide for the consequences of a breach.

Mutual v. one-sided non-disclosure agreement

A non-disclosure agreement can be in two basic formats: a mutual agreement or a one-sided agreement. A one-sided agreement also called a unilateral NDA, contemplates that only one party will share confidential information with the other party. A mutual non-disclosure agreement is for when each party may share confidential information.

The nature of the relationship between the parties will determine the type of non-disclosure agreement. For instance, a mutual agreement is used if there is a collaborative relationship between the parties. And where the parties will have insight into each other's business affairs. However, if the parties share a simple customer-supplier relationship, for example, a one-sided non-disclosure agreement is more appropriate. Employer-employee relationships typically use a one-sided confidentiality agreement. However, the General Data Protection Regulation requires employers to protect employees' confidential personal data.

Confidentiality in employment contracts

Under a typical employment contract, employees agree to owe their employer a duty of loyalty and confidentiality. In keeping with this duty, employees must act in the best interests of their employer. This means not speaking negatively about the business or saying anything that might harm its reputation. Moreover, employees must refrain from competing with their employer or diverting business to competitors.

An employee also must protect their employer's confidential information. Employees must not improperly use or disclose their employer's confidential information and trade secrets. This duty will apply whether or not an employee has entered a separate confidentiality agreement. Furthermore, the duty extends beyond the period of employment; it also prohibits an employee from using a former employer's confidential information for the benefit of a subsequent employer. However, an employee will uphold the duty simply by using the experience, general industry knowledge, or skills they have obtained in their former employment.

‍Many businesses opt to use a confidentiality agreement and an employment contract. An employee confidentiality agreement specifies the precise information and know-how the employee may not publish. Some categories of jobs require a confidentiality agreement. For example, an employee with a large amount of sensitive personal data must enter into a confidentiality agreement.

Contractbook and non-disclosure agreements

Contractbook has two non-disclosure agreements within its vast library of contract templates ready to be used by those who need one. There is a one-way non-disclosure agreement template and a broader nondisclosure agreement above. Both can be used to protect confidential information from being disclosed that a party will want to keep away from outsiders. 

Depending on your need or requirement, you can use either of these templates to create and sign a non-disclosure agreement quickly and know that the contract you make is legally sound. Contractbook only uses the best lawyers to create these templates, so you can be confident that using our non-disclosure agreement will protect you.