A Confidentiality Agreement is also known as a Non-Disclosure Agreement or NDA. It is a legal agreement which is used where the owner of confidential information wishes to disclose information to another party (either an individual or a company) usually in the course of business negotiations, and wishes the information to remain confidential. By signing this legal agreement the parties undertake not to disclose each other's confidential information.
What is a confidentiality agreement?
A non-disclosure agreement (NDA) is a legal contract between two parties not to disclose information that has been shared for a specific purpose. Confidential information is any information that is not in the public domain and can include things such as:
- trade secrets - eg a formula, programme or process
- technical drawings and designs
- mathematical and chemical formulae
- business plans
- customer and prospect lists.
A non-disclosure agreement cannot protect information that is already in the public domain or becomes publicly known.
When should I use an NDA?
Businesses may wish to share secrets with another business for a variety of reasons such as discussions about forming a joint venture or discussing a new invention.
It's particularly important to protect information about potentially patentable inventions. Detailed discussions about inventions should take place under strict terms of confidentiality. Otherwise the inventor may not be able to take out a patent for the invention.
Sensitive information can have great commercial value and should be protected from malicious or careless disclosure. Before sharing any secrets, a NDA can be used to record the fact that both parties have agreed not to disclose each other’s information. A confidentiality agreement can also be useful in specifying what kinds of information should remain secret and what measures should be taken to keep the information secret.
Public bodies and confidentiality
Information shared with public bodies (which includes universities) may be made available under the Freedom of Information Act 2000 (FOIA) regardless of any NDA they have signed. The FOIA allows the public access to some information held by public authorities, on request. Certain requirements have to be met but the end result may be that a public authority could be required to disclose information protected by a non-disclosure agreement.
If you want to protect business information shared with a public body they you may be able to do so by using a NDA that obliges the public body to take advantage of the exceptions allowed by the FOIA.
Types of non-disclosure agreements
There are two types of non-disclosure agreements typically used by businesses:
- a unilateral, one-way agreement – where one party or person is disclosing information and the other party agrees to keep it secret
- a mutual, two-way agreement – where both parties are sharing confidential information and agree to not disclose each other's secrets.
Some other types of legal contracts, such as employment contracts, include confidentiality clauses that impose restrictions on how parties to the agreement can use business information.
What should a draft agreement include?
A legal agreement suitable for business use needs to set out:
- full details of the parties to the agreement
- nature of the confidential information and how it can be used
- restrictions on the use of the information such as preventing the recipient from making copies
- the duration of the agreement.
In this age of electronic information it is unrealistic to expect that confidential business information is not copied, if only as part of a backup procedure. A draft legal agreement seeking to protect business secrets should outline what procedures are required to secure electronic information and dispose of it when the agreement ends. Since electronic data cannot be 'destroyed' in the same way as a physical copy of a document, the agreement could make provision for both parties providing the other with written confirmation once electronic copies of confidential information have been deleted on termination of the agreement.
Two copies of the completed document should be signed, with a copy kept by each of the signatories. The person who signs should be someone who has the authority to enforce the terms of the agreement e.g. within a company this could be the CEO or another member of the executive management team.
What happens if confidentiality is breached?
The benefit of using a well drafted NDA is that should one party break the agreement, then the other party can sue for breach of contract. Having a non-disclosure agreement in place can also be helpful if one party knows that the other plans to publish or otherwise make public confidential information. The party whose secrets are about to be disclosed could go to court to ask for an injunction to prevent disclosure. The written NDA will be evidence of the nature of the confidential information and the agreement between both parties to keep it secret.
The main legal 'remedy' for breach of confidentiality is an injunction to prevent any further disclosure. If disclosure has occurred then the party whose information has been disclosed can seek economic damages through the courts. The claimant can only sue for damages that are reasonably foreseeable and probably not for future loss of profit. As well as damages relating to the direct losses (and those covered by any confidentiality agreement in place) it is possible that legal costs will also be recoverable.
Of course, legal action can be costly, time consuming and expensive. If you are party to a confidentiality agreement and think the other party has not kept to the terms of the agreement then you may wish to seek a resolution without resorting to the courts. If the other party is not even aware of the breach then they may be keen and willing to take immediate action to rectify any breach once it has been brought to their attention.
Keeping secrets safe
You should keep your confidential information physically secure. If you don't and you subsequently need to sue for breach of confidentiality, the courts might be reluctant to treat information as secret if you haven't taken reasonable steps to protectit yourself. The type of measures you might take include:
- physically securing confidential information by locking it away
- limiting the number of people who can access the information
- ensuring up-to-date IT security systems are in place.
If you are an employer then another practical step you could take to safeguard your business secrets is to have a company confidentiality policy. This could be a separate document or could be incorporated into each employee's contract of employment as a confidentiality clause. Such a clause might look something like this:
You undertake not to divulge or allow to be divulged, at any time during the course of or following termination of your employment, any "Confidential Information" relating to the Employer, its business, finances and affairs to any third party without the consent of the Employer save as is necessary for the proper performance of your duties. "Confidential Information" means all information that may be imparted in confidence or be of a confidential nature relating to the business or prospective business, plans or internal affairs of the Employer which is not in or has not entered the public domain and is not generally available to the public.
A separate corporate confidentiality policy may go further than the above clause and set out in detail how employees are expected to treat and protect sensitive business information.
This legal agreement is suitable for use in England, Wales and Scotland to protect information disclosed as part of business discussions. The parties to the agreement can be either individuals or businesses. The template includes the following clauses:
- details of the parties
- definition of confidential information
- purpose of discussions
- terms of confidentiality.
Both parties are required to sign the agreement and abide by the terms.