NDAs – an overview
A Non-Disclosure Agreement (NDA), also referred to as a Confidentiality Agreement, is a legal mechanism used primarily in employment or business contexts to safeguard confidential information. NDAs are versatile instruments applicable across various scenarios, but their core principle remains the same: one or both parties agree not to disclose specified confidential information.
NDAs can either be standalone documents or be incorporated into broader agreements. For example, there may be non-disclosure clauses in an employment contract or a Settlement Agreement, to ensure that proprietary or sensitive information remains confidential.
Types of NDAs
NDAs are legally binding contracts and typically fall into two categories:
– Unilateral NDA: Only one party is required to keep the disclosed information confidential.
– Bilateral or Mutual NDA: Both parties are mutually obligated to maintain the confidentiality of shared information.
Common Scenarios for NDAs
NDAs are commonly employed in the following situations:
- Pre-Contract or Tender Negotiations: Confidential information may need to be exchanged during the negotiation phase to facilitate contract terms. Mutual NDAs are commonly used in such instances.
- Mergers and Acquisitions (M&A): During the acquisition process, the acquiring party often signs an NDA to prevent the disclosure of sensitive information related to the target company.
- Employment Contracts: Employers may require NDAs to prevent employees from disclosing trade secrets or confidential information that provides a competitive advantage.
- Product Development and Collaboration: NDAs are frequently used to protect intellectual property during joint ventures or scientific collaborations.
- Settlement Agreements: NDAs are included in settlement agreements to protect confidential information, particularly upon the termination of an employee.
Key Elements of NDAs
Whether part of a larger agreement or a standalone document, NDAs typically contain the following elements:
- Parties: Identifies all parties to the agreement, including any agents, employees, or professional advisers.
- Definitions: Specifies the types of information considered confidential and how it will be managed.
- Obligations: Outlines the parties’ responsibilities to safeguard the confidential information.
- Destruction/Return of Information: Details the procedures for handling confidential information upon the termination of the agreement.
- Exclusions: Identifies information that is excluded from the NDA, such as information already in the public domain or disclosed by means outside the control of the parties.
- Duration: Specifies the time period during which the NDA will remain enforceable.
- Remedies for Breach: Provides for the consequences in the event of a breach, including potential legal remedies.
NDAs and Public Authorities
When entering into NDAs with public authorities, it is advisable to exclude the application of the following legislation:
- The Freedom of Information Act 2000
- The Freedom of Information (Scotland) Act 2002
- The Environmental Information Regulations 2004
This exclusion is not intended to conceal information but rather to protect commercially sensitive information or intellectual property from being disclosed through public authority obligations.
Unenforceable NDAs
There are specific circumstances, particularly in employment settings, where NDAs may not be enforceable, including:
- Whistleblowing: Protecting employees who disclose wrongdoing in the public interest.
- Reporting a Crime: NDAs cannot prevent someone from reporting criminal activity to the authorities.
- Discussing Pay for Equal Pay Reasons: Employees cannot be prohibited from discussing wages if it relates to equal pay issues.
Abuse of NDAs
The improper use of NDAs has come under scrutiny, particularly following the MeToo movement. High-profile cases, such as the Harvey Weinstein scandal, highlighted how NDAs were used to silence victims of sexual harassment.
In September 2023 the Treasury Select Committee inquiry heard evidence from the Can’t Buy My Silence campaign about NDAs being used to cover up sexism and discrimination in the City of London.
Prior to the General Election in July 2024, the Conservative Government had plans to introduce legislation to outlaw the misuse of NDAs. Due to the General Election, this legislation did not make it to the Statute Book.
Conclusion
When parties enter into NDAs, they allow the parties access to confidential information for commercial and business reasons. They come with reasonable obligations not to disclose the confidential information to anyone not entitled to see that information. It is only proper that there should be sanctions for those who breach such agreements and NDAs serve that purpose.
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This article is not legal advice; it is intended to provide information of general interest about current legal issues.
