How does a Non-Disclosure Agreement (NDA) work?

If you’re reading this article, you may be considering putting a Non-Disclosure Agreement (NDA) in place with a supplier, client, or another contracting partner, or you may have been given one by a third party and asked to sign it.

With Non-Disclosure Agreements becoming ever more commonplace in modern business, you must have a base-level understanding of these documents, why they are used and some of the things to be aware of before signing.

As you can imagine, these documents are especially popular in the information technology sector. We discuss what an NDA is and what it typically includes.

What is an NDA?

As the name suggests, a Non-Disclosure Agreement is intended to prevent the disclosure of certain defined information or documentation beyond what is permitted under the Agreement.

An NDA is generally used when one party discloses confidential information or documentation to the other party for a specific contractual purpose.

An NDA may be mutual (in that it applies both ways), or it may be ‘one way’ (in that it applies to one contracting party only).

Suppose only one party is disclosing confidential information/documentation to the other. In that case, a one-way NDA is typically used; if there is a mutual exchange of confidential information/documentation, a mutual NDA is often used.

It is common for the NDA to be among the first documents signed when the parties begin a business relationship.

This ensures that commercially sensitive information/documentation can begin flowing to achieve the commercial purpose without fear of falling into the wrong hands.

Are Confidentiality Agreements and Non-Disclosure Agreements the same thing?

The term ‘Confidentiality Agreement’ is more of a UK legal term, whereas ‘NDA’ is widely used internationally.

Why might I need an NDA?

You may need an NDA if, for example, you are entering into a new business relationship and wish to protect any confidential or commercially sensitive information/documentation belonging to the business that you have allowed the other party to know about for the mentioned business relationship.

Likewise, you may be working as a contractor or sub-contractor and receiving information/documentation of the kind referred to above as part of the project.

In these circumstances, it is typical for the client or lead contractor (as applicable) to require you to sign an NDA before commencing work.

What should I expect to see in a typical NDA?

You should expect to see the ‘confidential information’ scope clearly defined in the Agreement. You need to know what is to be considered ‘confidential information’ and therefore protected by the terms of the Agreement.

The NDA will also include:

• The duration or time limit on the restrictions on disclosure may be open-ended
• The caveats (or ‘carve-outs’) related to certain information which is not deemed to be caught by the restrictions. For example, this may relate to information readily available in the public domain, pre-existing information known to the parties, etc.
• The clauses stating the remedies for breach of the NDA. This may extend to damages and equitable relief such as an injunction. Ultimately, it will be for the courts to uphold any such remedies.

Are all NDAs the same?

No, not all NDAs are the same.

Also, you may come across clauses that are generally not part of a conventional NDA, but a party tries to ‘throw in’ in an attempt for you to sign up to them. This may include clauses relating to restrictive covenants or intellectual property rights, etc.

For this reason, you should exercise great care before signing.

Should I get my NDA professionally reviewed by a Lawyer?

Yes, getting your NDA professionally reviewed is a good idea, particularly if you have not signed one before, if it is a new business relationship, or if you have concerns about specific clauses.

Ashley Gurr is a commercial and business lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on Commercial Contracts and multi-national utility giant in a Contract Strategy role.