Non-disclosure agreements (NDAs) are sometimes discussed in scenarios which make them sound like all-mighty agreements which bind individuals to total silence. The reality of NDAs is they are extremely useful documents to implement in commercial contexts to protect commercial secrets, but there are limits to what can be the agreement's subject. In this article we will demystify the existence of NDAs and discuss when you may want to consider implementing them over your interests.
What is a non-disclosure agreement (NDA)?
An NDA is a contract that establishes a confidential relationship between parties and ensures that any sensitive information shared between them, as defined in the agreement, is not disclosed to others.
Are NDAs legally enforceable?
Yes, NDAs are legally enforceable but only if they are properly drafted and executed. Breaching an NDA can result in major legal consequences.
If you reveal information you had agreed to keep confidential, then the other party to the agreement may choose to pursue litigation and claim damages for the losses they have incurred as a result of your breach. If you have profited from disclosing the information, the owner of said information may pursue a claim for the profits under the NDA. This means if there is an NDA in place, litigation can be pursued and if successful, can be a very costly experience for the breacher.
Are there any limitations on confidential information in NDAs?
NDAs cannot protect information that is already public or is permitted to be disclosed through legal means. NDAS are often drafted to make individuals aware of their rights to make disclosures if they are whistleblowing, making a protected disclosure or reporting a crime. Even if this is not set out explicitly in the agreement, any clauses which seek to limit your ability to speak out on these protected disclosures would automatically be held void and ineffective. NDAs therefore cannot be used to silence victims of crime or discrimination.
Breaching an NDA can result in major legal consequences.
When should you consider entering an NDA?
We encounter NDAs most regularly in the context of commercial transactions. If you are looking to buy a business, then you will want to see details of the business that would not normally be made public. This can include things like finances, employee data and other sensitive information. The owner of the information won't want that information to be made public should the agreement not finalise, and the buyer won't be incentivized to purchase the business if they are not provided with this information. An NDA provides both parties comfort to disclose and review the information by providing the ability to take legal action should the information become public.
Confidentiality can also be a consideration in relation to employment contracts and settlement agreements. As an employer, you would not want departing employees revealing business information to competitors. Likewise, if you make a payment as part of a settlement agreement, you would not want the terms of that agreement publicised. If those documents have not considered this issue in the form of a confidentiality clause, then an NDA may be required to ensure that confidentiality is maintained.
Do I need an entire NDA?
Not necessarily. If the information which you want to keep confidential is linked to another agreement you can incorporate a confidentiality clause into that agreement. However, an entire agreement dedicated to keeping the information confidential can emphasise the importance of confidentiality to all signing parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
