Non-Disclosure Agreement

09 July 2019

Non-disclosure agreements allow you to begin legal action against an employee, stakeholder, or any other party for breaching confidentiality.

You'll be compensated under these agreements if the person receiving the information doesn't protect it. However, there are several important legal steps you must take beforehand.

A non-disclosure agreement may lose all of its value if it's structured improperly. It's easy for the inexperienced eye to overlook important details.

In this guide, we'll explain what a non-disclosure agreement is, how it works, and how to write your own non-disclosure agreement.

What is a Non-Disclosure Agreement?

Non-disclosure agreements (NDAs) are binding contracts which protect a business and allow parties to move forward without needing litigation.

Employers can use confidentiality agreements to formalise their relationship with their employees. With an NDA in place, the two parties can agree to share sensitive information, such as trade secrets.

NDAs are also useful when two companies discuss business connections whilst wanting to keep the terms of any possible deal confidential.

For example, say you own a tech company and are aware of the fierce competition in your industry. You want to keep your technical information away from public disclosure.

In this case, you can ask your employee to agree to an NDA to stop them giving your information away to competitors.

Why are non-disclosure agreements important in business?

The benefit of having an NDA is that they are legally enforceable contracts which define the rights and duties of parties involved.

A signed NDA between two parties needs to comply with:

  • Identifying confidential information: NDAs categorise information by defining a line between what is confidential and what can be disclosed. This allows the parties to work freely within the limits of the confidentiality agreement.
  • Protecting sensitive information: Signing an NDA brings a legal responsibility to manage sensitive information, such as financial information and original research. Any disclosure of the information is a breach of contract.
  • Protecting patent rights: The public disclosure of a pending invention can sometimes result in the loss of patent rights and severe financial damages. An NDA can protect the inventor while they are developing a new product or concept.

Different types of non-disclosure agreements

A non-disclosure agreement (NDA) might be either one way or mutual:

One-way non-disclosure agreement

This restricts how a party may use or share confidential information from their company. The information includes whatever employers want the other party to keep private. Such as business plans, trade secrets, layouts, and unpatented innovations.

An employer can use one-way NDAs to disclose confidential information to their employees, clients, and stakeholders. If you're working on new products that aren't common knowledge, ask your employees and contractors to sign NDAs.

If you don't have non-disclosure agreements in place, other people may share information or results. This can damage the value of your product and dampen public interest.

Mutual non-disclosure agreement

A mutual NDA has two parties involved; both anticipate state information they want the other to keep confidential. This is also known as a two-way NDA.

This type of confidentiality agreement is common for companies planning a joint venture or merger.

Some companies or individuals may prefer a mutual NDA. This motivates the drafter to make NDA provisions fairer and more balanced. This allows the receiving party to become a disclosing party, which is not an unusual event.

When are non-disclosure agreements used?

When you reach an agreement with your employees over a dispute, you can use an NDA to keep the following confidential:

  1. The fact that you reached an agreement.
  2. The details of the agreement.

As an employer, you should always double-check to see if a non-disclosure agreement is absolutely necessary. Some issues may be public knowledge or already be regulated by The Data Protection Act 2018 (GDPR).

Keep in mind that certain things may not be protected by law. But restricting them could cause serious moral or ethical concerns in your business.

Here are reasons when you may sign NDAs with your employees:

Keeping an agreement confidential

This is when you reach an agreement with an employee, but you want to keep it confidential. Basically, you don't want anyone to know that you agreed to a deal with them.

It could be because only relevant people need to know, rather than the vast majority of the department.

Keeping details of an agreement confidential

This is when you need to resolve an issue with an employee, but you want to keep certain information confidential.

The information may be agreed to through a confidentiality clause within a settlement agreement. However, you don’t need a separate NDA for this.

Other reasons for using a non-disclosure agreement

There are other reasons for using an NDA in your business. For example:

  • To keep your company's information confidential.
  • To protect customer identities, intellectual property, or sensitive business information.
  • To keep employees from making critical or insulting comments related to your business.
  • To protect the details of a dispute or dismissal from becoming widespread.

When shouldn't you use non-disclosure agreements?

Employers shouldn’t use an NDA to stop your employees from whistleblowing or reporting criminal activities to the police. Even if the employee agrees by signing an agreement, there’s nothing you can do by law to stop them from whistleblowing.

For example, you can't stop a staff member raising concerns over your company's emissions data. An NDA should also not be used in the following situations:

What happens if someone breaks a non-disclosure agreement?

Disclosing confidential information covered by an NDA can have serious consequences because it's a legally binding contract. If a current or former employee violates an NDA, you can take action by law.

Here are examples of common claims raised in NDA court cases:

  • Breach of the confidentiality agreement.
  • Misuse of trade secrets.
  • Copyright infringement.
  • Other breaches of intellectual property law.

What are remedies for breaching of NDA?

If an employee violates an NDA, you can seek the following remedies:

  • Injunction: If a business finds an employee's intent to violate a confidential relationship, this is usually the initial course of action. An injunction order can be used to restrict the employee from using the confidential information.
  • Fee: You can ask for a fee equal to the amount the user of the confidential information would have paid for a license to use the information otherwise.
  • Taking profits: You can request an accounting for any profits made by your employee from the confidential information.
  • Payable damages: You can require the receiving party to pay liquidated damages, such as a present sum of money specified in the contract.

How long can a non-disclosure agreement last?

It is common for non-disclosure agreements to be limited to three or five years. The receiving party will be allowed to use and disclose your information after this period.

The disclosing party cannot enforce an NDA if information has been made public in any way. Some information could be kept confidential indefinitely without setting time periods. For example:

  • Non-patentable know-how.
  • Lists of customers.
  • Personal information on the people involved in a project.

How to write a non-disclosure agreement

To effectively write an NDA, you should:

  1. Be realistic and research about the type of NDA you need.
  2. Draft the NDA template.
  3. Protect your confidential information before signing the contract.
  4. Make use of contract management tools.
  5. Seek advice from employment law experts.

When you decide to write a non-disclosure agreement, make sure you include the following:

  • Parties to the agreement: Identify the parties (people or entities) within the non-disclosure contract. Explain who the disclosing party and recipient are by using names and addresses.
  • Definitions: Specify what information is confidential. Spell out the different types of information covered by the agreement and establish rules for handling it.
  • Obligations: Start by outlining particular behaviour anticipated of each signatory, but also the penalties of breaking the agreement.
  • Scope: Ensure the NDA is enforceable; and avoid broad terms like ‘proprietary information’ as these lack details and may not hold up in court.
  • Time period: Most NDAs don't remain forever. Outline how long your confidentiality agreements last.
  • Return of information: After parties agree on the deal terms, an NDA may require the recipient to affirm sensitive information has been returned or destroyed.
  • Exclusions: This kind of information doesn't need protection. This may include information that was previously disclosed or that new employees were aware of before joining the business.
  • Remedies: Describe what happens if the confidentiality agreement is breached.

The person signing the NDA should be someone senior within the business who has the authority to give the undertaking in the contract.

Get advice on non-disclosure agreements with Peninsula

Non-disclosure agreements enable you to take legal action against an employee, stakeholder, or anyone that violates confidentiality.

The information you are protecting is valuable. If you structure the NDA incorrectly, it may become unenforceable and hence useless.

Peninsula offers 24/7 HR advice which is available 365 days a year. Our experts give you HR documentation and contract services and guide you through legal rules for non-disclosure agreements.

Want to find out more? Contact us 0800 051 3687 and book a free consultation with one of our HR consultants.

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