Brighter business / Non-disclosure agreements: The basics of protecting business-sensitive information

Non-disclosure agreements: The basics of protecting business-sensitive information

27th July 2017

Businesses are built on information – financial figures, customer data, intellectual property and so on. Sometimes, this information is business-sensitive, and that can be a cause of issues.

In business-related discussions with certain agencies or individuals – such as banks, accountants, marketing or PR agencies – you may be under the impression that your discussions are confidential.

However, this isn’t always the case – and where sensitive information such as intellectual property or trading information is under discussion in these sorts of circumstances could be damaging to your business, leaving you in a vulnerable position.

As such, it’s important to have something in place which can protect confidential discussions – which is where non-disclosure agreements come in to play.

Remember: always seek professional legal advice if you need help.

Non-disclosure agreements (NDAs, or sometimes also called confidentiality agreements) are legal documents which guarantee confidentiality in discussions. They also allow business to freely exchange information without fear of suffering a breach of confidence to sensitive information.

NDAs can be either one-way documents or mutual, protecting information that is communicated from one party to another in the first instance, or in the case of the latter, protecting information communicated by both parties.

While your employees may handle confidential information, they do not need to sign a non-disclosure agreement. There is an implied duty under the terms of their employment which requires they act in the best interests of your business.

What goes into an NDA?

There are some key elements to an NDA which will help to define the grounds and the scope of the document; in terms of legal enforceability, these are essential.

Any NDA will need to include the names of the parties involved, which are referred to as the discloser and the recipient, respectively.

NDAs can be wide or narrow in scope, but one which is excessively broad may be considered to be legally unenforceable.

As such, setting out a reasonable scope– specifically defining which information is confidential – is central to the integrity of the document. It can cause a headache, but it really is the most important part of the agreement, so take some time defining the terms.

Not everything will be confidential; there will be some common information which can be freely discussed if the recipient needs to communicate to their partners or employees.

NDAs will also define in detail how confidential information can be used, restricting further disclosure of information to the public domain, retention of intellectual property rights or copyright, and so on.

It’s also important to think about the duration of confidentiality, the length of time you want information to be considered confidential for. NDAs typically last between 2-5 years, which should keep any information adequately protected.

Finally, and perhaps most importantly, is to include a clause for legal remedy (i.e., financial compensation) if the agreement is breached. Ensuring that there is strong financial penalty can act as extra motivation when discussing business-critical information with external parties.

What qualifies as “confidential information”?

Calling any old information confidential wouldn’t hold up in a court of law; it needs to be demonstrated.

This means that if you were to enter into a legal dispute with an individual or business you have disclosed confidential information to, the court needs to see certain criteria fulfilled:

If these criteria are satisfied, the court may be convinced that the NDA is enforceable.

Important information

Clearly, non-disclosure agreements are beneficial documents to have in place.

As NDAs are binding legal documents, it’s important that you get a qualified professional to draw up your draft and final documents.

Templates are widely and easily available online; if you decide to draw up your own using a free template, get a legal professional to check it is sufficient and adequate for purpose.

The initial legal cost is negligible in the long run, especially so if you’re concerned that business-sensitive information could be at risk. Using a non-disclosure agreement is the best way to protect yourself and your business.

Remember: always seek professional legal advice if you need help.