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What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement (NDA) is a legally binding contract between two parties that aims to keep specific information confidential. An NDA is also known as a Confidentiality Agreement.
When a recipient of confidential information signs an NDA, they agree not to disclose it to any unauthorised people or organisations. If they fail to keep the information private, the disclosing party may have the grounds to take legal action against them.
Our Non-Disclosure Agreement template is suitable for:
- England
- Northern Ireland
- Scotland
- Wales
Who is involved in a Non-Disclosure Agreement?
There are two parties involved in an NDA:
- The information provider, also known as the disclosing party, is the individual or organisation that is sharing confidential information.
- The recipient is the individual or organisation that is acquiring the information and keeping it confidential
Depending on your situation, one party can comprise multiple individuals or organisations.
When should I use a Non-Disclosure Agreement?
An NDA can be used in a variety of situations in the United Kingdom, such as the following scenarios:
1. Hiring an employee
If you're hiring an employee who will have access to confidential information on the job, have them sign an NDA before hiring. This is especially important if some sensitive details will be discussed during the interview process. Confidential information could include your business' marketing strategies, customer data, future ideas, and more.
A Non-Disclosure Agreement can protect you and your business interests by deterring your employees from sharing or misusing confidential information. An NDA will make it clear to your prospective employee what information must be treated confidentially and the consequences if they don't keep their obligations. If the employee breaches the agreement, you can sue them for breach of contract.
Alternatively, if you don't want to create NDAs for your employees, and won't need to discuss any trade secrets prior to hiring, you can include confidentiality clauses in Employment Agreements that will protect your sensitive business information.
2. Hiring a contractor or consultant
If you're hiring a contractor or consultant who will have access to confidential business information while working with you, have them sign an NDA beforehand.
Like with employees, contractors and consultants may need access to your business's marketing strategies, customer data, or more to perform their role. With NDAs, you can provide them with the information they need to succeed while protecting your interests.
In addition, ensure you always use Independent Contractor Agreements and Consulting Agreements when hiring contractors and consultants.
3. Selling a business
If you're selling all or part of your business through the sale of shares or assets, a prospective buyer will complete their due diligence by requesting to see your financial books or other confidential records. Confidential information can include knowledge or documentation relating to employees, trade secrets, clients, profits, or losses.
Before you disclose anything, ask prospective buyers to sign an NDA. After the NDA has been signed, both parties should sign a Letter of Intent that outlines their genuine intentions to complete the transaction after due diligence has been completed.
4. Discussing an invention or idea
When discussing an invention or piece of intellectual property with someone, have them sign an NDA before disclosing any information.
To evaluate an invention, investors or potential buyers often require access to confidential information about it before deciding whether they want to be involved. An invention could be a:
- Product
- Plan
- Design
- Recipe
A Non-Disclosure Agreement allows investors, buyers, and other collaborators to make informed decisions without having the right to share or misuse your intellectual property.
Generally, you shouldn't describe an invention in an NDA to ensure that the evaluator can't read the agreement, gain knowledge about your invention, and refuse to sign.
Confidential information includes all information that the provider discloses to the recipient that is not common knowledge or already in the public domain. A Non-Disclosure Agreement can protect any or all of the following types of confidential information:
- Business operations, such as personnel data, operational costs, and vendor details
- Customer data, such as contact information, client contracts, and purchase quantities
- Intellectual property and proprietary information, such as copyrighted works and trade secrets
- Services provided, such as internal plans, schedules, and training materials
- Products and processes, including research, designs, and manufacturing techniques
- Accounting and finances, such as annual reports, company liability, and payroll records
- Marketing and development, such as marketing strategies, pricing policies, and forecasts
- Computer technology and security, such as proprietary computer code, passwords, and operating procedures
Non-Disclosure Agreements cannot protect information that is:
- Already known in a specific industry
- Publicly known through no fault of the recipient
- Already rightfully in the possession of the recipient
- Created by the recipient through their own independent research
- Rightfully disclosed and obtained from a third party
Mutual versus one-way NDAs
Non-Disclosure Agreements can either be one-way or mutual. Our template only creates one-way NDAs.
Under a one-way NDA, one party agrees not to disclose confidential information. Therefore, only the recipient is bound to confidentiality. One-way NDAs are also known as unilateral or non-mutual NDAs.
Under a mutual NDA, also known as a bilateral NDA, both parties disclose and receive confidential information and protect their interests in one document. If you need a mutual agreement, you can use our template to create two documents with the parties switching roles.
Term dates of NDAs
The obligations of confidentiality created by an NDA can continue indefinitely or end on a predetermined date.
Although, it should be noted that the duties of non-disclosure can extend beyond the formal end of the agreement. For example, trade secrets are considered valuable business assets and are generally protected indefinitely by the laws in England, Scotland, Wales, and Northern Ireland.
Also, an NDA will not be enforceable if the confidential information becomes publicly known (through no fault of the receiving party) because it can no longer be defined as confidential information.
How do I write a Non-Disclosure Agreement?
A well-drafted Non-Disclosure Agreement should include the following specific information:
- The scope and definition of the confidential information
- The permitted use of the confidential information
- The obligations of the Non-Disclosure Agreement
- The parties' names and addresses
- The duration of non-disclosure
You also have the option of including additional clauses in your NDA. For example, you may include a non-compete clause that restricts the receiving party from launching a competing company or providing confidential information to competitors. Or, you may include a non-solicit clause that prohibits the receiving party from taking advantage of the confidential information to entice the disclosing party's contractors or employees to work for them instead.
Breaking a Non-Disclosure Agreement
Even though a Non-Disclosure Agreement is a strong deterrent for disclosing confidential information to unauthorised parties, breaches can still happen.
If a recipient of confidential information breaches an NDA, the first step is often to send a Cease and Desist Letter. If that does not produce the desired result, the information provider may need to take legal action.
If a recipient has broken a Non-Disclosure Agreement and the misuse of the confidential information goes to the core of the information provider’s business or earning potential, damages are often an inadequate remedy.
Our NDA template outlines that a court injunction is an appropriate relief for a breach of the contract. When a court orders an injunction, it means the recipient must immediately cease any misuse of confidential information. Failing to obey a court order is contempt of court, which can result in fines or imprisonment.
However, legal actions are costly and time-consuming. Alternatives which may be applicable to resolve the dispute include one-on-one negotiation or mediation.