Insights

The What, Why, and How of NDAs: The Importance of Confidentiality Agreements

March 31, 2022

You might have heard of Non-Disclosure Agreements (“NDAs”) – but perhaps you’re unsure of what they are, what they do, and when you need one. Look no further friends, we’re here to answer these niggling questions.  

What is an NDA?

Let’s take this back to basics. An NDA is a legally binding agreement between two (or more) parties that places an obligation on the recipient(s) of the confidential information to keep that information secret. The aim is to prevent confidential information from falling into the wrong hands. For the person who owns the confidential information (the ‘disclosing party’), those hands might belong to their business competitors.

There are two types of NDA: one-way and mutual. A one-way NDA does what it says on the tin – one party discloses secret information to another, and the receiving party is under a legal obligation to keep that information hush-hush until the confidentiality period is up.

A mutual NDA flows both ways. Information is shared on a two-way street, so both parties have a duty to keep each other’s secrets schtum.  

Why do I need an NDA?

To protect your confidential information. This is information that you want to keep secret from the wider public (but mostly your competitors). As a legally binding agreement, an NDA gives you much greater reassurance that your confidential information will be protected, as there could be legal consequences for the receiving party if they break their promise.  

These legal consequences might include bringing a court action that would prevent them from disclosing information in certain circumstances (for example, if they threaten to expose your secrets), or give you grounds to bring a claim against them for compensation if they do expose your confidential information causing you financial losses.

When do I need an NDA?

You’re working hard to build your business. You’re speaking to a prospective partner or supplier and need to share confidential information with them – like intellectual property (especially where you are considering applying for a patent), client lists, proprietary processes, or supplier and customer agreements – but you’re worried about the information being misused. Even worse, if it was misused it could really damage your business.

That’s where we step in to create you a bespoke agreement that’ll make you feel less ‘AAAHHH!’ and more ‘Ahhhhhh….’

What type of information can be kept ‘confidential’?

Now, just because you want to keep some information secret, doesn’t make it confidential, as defined by law.  

An NDA sets out the type of information that is confidential but it can’t protect all types of information. Information that is, for example, already known to the public (like, your Great Aunt Geraldine could look it up on the old Wikipedia) can’t be made confidential simply by referring to it in an NDA.

A second common exclusion is that information is not confidential if the receiving party already had that information in their possession. This might be because they were already aware of it, or were made aware of it by a third party. Crucially, they haven’t originally obtained that information through you.  

How long does confidentiality last?

Most NDAs make clear that the obligations of confidentiality continue even after the relationship between the parties has come to an end. Sometimes it’s appropriate for this obligation to continue indefinitely, however, it is usually more appropriate to set durations based on how long the information is likely to remain valuable.  

Confidential obligations in commercial agreements usually last a period of between two and five years from the date of disclosure.

Can confidential information be disclosed to anyone?

NO!

Just kidding. An NDA should specify the people who the confidential information will need to be disclosed to, such as the receiving party’s employees, representatives, sub-contractors or affiliates. Disclosure might be necessary to fulfil the reason why you entered the confidentiality agreement in the first place, and this is generally acceptable provided that whoever has access to the information is also under an obligation of confidentiality.  

In addition, the receiving party might be compelled to disclose information by law or court order. 

Gagging clauses and news highlights

You may have come across this phrase in the news (most recently as Channel 4 faces whistleblower campaign against NDAs) but what does it mean exactly?

Gagging clauses primarily relate to employment law. They are a condition in a contract of employment that forbids an employee from publicly disclosing information about their employer or work. But this condition, as with most things, comes with an exception for whistleblowers, who are allowed to make certain protected disclosures. These include any disclosure of information that, in the reasonable belief of the worker making the disclosure, is made in the public interest. So, for example, this might be related to an actual or potential criminal offence or the endangerment of the health and safety of another individual. Keen to find out more about who is protected by whistleblower laws? Check out our whistleblower guide here.

The government are cracking down on the laws surrounding NDAs and gagging clauses, as it is widely believed that there are negative connotations surrounding these conditions that can sometimes have the effect of, "silenc[ing] and intimidate[ing] victims to stop them speaking out".  

In 2020, a BBC News investigation found nearly one-third of universities had used NDAs to resolve student complaints, involving over 300 individual NDAs – though the true figure is expected to be higher. Shocking figures like this spur the need to advocate for change where NDAs are not fit-for-purpose.

NDAs in a nutshell

So, we've covered the what, the why, and the how of NDAs, alongside some of the less fit-for-purpose instances of their use. For those intent on ensuring crucial information stays in the right hands, NDAs can be some of the most beneficial agreements to have in one's arsenal.

Are you contemplating the use of an NDA? Our technology, employment, and intellectual property teams are well-versed in the nitty-gritty of NDAs and can help you protect your most prized secrets. To do so, reach out to us here.

Technology is evolving, and so are your lawyers. Find out more about our technology offering here.

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