Non-disclosure agreement protections are often the first line of defence when you're sharing sensitive business information.
Whether you're pitching to investors, exploring a joint venture, or hiring a consultant, disclosing details without the right agreement in place can expose your business to unnecessary risk. A start-up founder might need to reveal product plans before securing IP rights, or a supplier may need access to internal pricing data to scope a project.
A carefully worded NDA ensures that confidential information stays protected, clearly sets out permitted uses, and provides legal remedies if a breach occurs. Our commercial law solicitors work closely with businesses of all sizes to prepare robust, enforceable NDAs that reflect the unique risks of each deal or relationship. Whether you need a simple one-way agreement or a multi-party confidentiality arrangement, we’ll make sure your position is protected and commercially sound.
Jump to:
- What is a non-disclosure agreement?
- Does my business need an NDA?
- When do I use an NDA?
- How do NDAs work?
- What are the key NDA clauses?
- What are the different types of NDAs
- Can I terminate an NDA?
- Are NDAs enforceable?
- Should I include NDAs in my employment contracts?
- What if an NDA is breached?
- Are NDAs worth it?
What is a non-disclosure agreement?
A non-disclosure agreement is a legal contract about the sharing of confidential information. The agreement should identify the confidential information and place the recipient under an enforceable contractual obligation with sanctions for breach. An NDA gives an incentive to maintain confidentiality.
Non-disclosure agreements can also be referred to as a confidentiality agreement and can be:
- An initial agreement in preliminary business discussions
- Form part of a substantive commercial contract
- Form a stand-alone agreement to the main contract
Does my business need an NDA?
When you hold commercially sensitive information your business needs to ask itself three questions:
- Does the confidential information need to be shared with a third party, or can you proceed in the absence of disclosure?
- Is the third party already subject to regulations on confidentiality that cover your business? For example, solicitors are regulated by the Solicitors Regulation Authority.
- Would a breach of confidential information damage your business?
An NDA is not required where the confidential information is already in the public domain or has already been disclosed by you or is already known by the third party from another source.
When do I use an NDA?
What amounts to commercially sensitive information varies widely, but examples where an NDA should be considered include:
- A start-up company with an unpatented invention, a new product or technology without intellectual property protection, negotiating a potential joint venture agreement or investment.
- Sharing information with a prospective franchisee as part of a franchise agreement, the disclosure may include detailed management accounts, business plans, or projected forecasts.
- Giving information to a potential service provider, such as a freelancer or subcontractor, to enable them to quote for work.
If you’re unsure how best to protect sensitive information, then do seek legal advice. Our commercial solicitors can advise on the appropriate clauses to protect your business.
How do NDAs work?
The contractual consequences of a breach of an NDA could include a compensation claim or securing an injunction order to prevent any damage or loss (or further damage or loss) arising from an actual or threatened breach of confidentiality.
What are the key NDA clauses?
The key NDA provisions are:
- Definition of the confidential information to be protected by the NDA. The definition should be broad enough to catch all the categories of confidential information being disclosed, but narrow enough to be appropriately specific.
- Use of confidential information for the permitted purpose. The agreement needs to specify under what circumstances and for what purpose the recipient can use the confidential information.
- Sharing of confidential information. The NDA should specify whether the recipient is permitted to share the confidential information with a third party. For example, the recipient may be allowed to share information with key employees and advisors, although these individuals may be required to sign non-disclosure agreements (NDAs).
- Return of confidential information. The NDA should set out what will happen to the confidential information. If the project or transaction doesn’t proceed, then the NDA should provide that the confidential information will be returned to the disclosing party or destroyed.
- Duration of the agreement. The agreement will contain a time during which it will remain in effect.
- Non-disclosure clause. This is the heart of the agreement, as it prevents confidential information from being disclosed to third parties except as strictly permitted by the terms of the agreement.
- Breach remedies clause. To set out that the business can claim damages and secure an injunction order if there is a breach.
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Non-disclosure agreements will require legal advice. Contact our commercial law solicitors for help drafting and negotiating your NDA or confidentiality agreements.
What are the different types of NDAs
The three different types of NDAs are:
- Unilateral or ‘one-way’ agreement involving two parties where one of them will disclose confidential information to the other.
- Bilateral, ‘mutual’ or ‘two-way’ agreement involving two parties where both intend to disclose confidential information to the other. These types of agreements are common in merger and acquisition scenarios, where both parties will be sharing confidential aspects of their respective businesses.
- Multilateral agreement involving three or more parties, where at least one party will be disclosing confidential information to the others.
Can I terminate an NDA?
Usually, a recipient of information can't terminate an NDA, as this would defeat its purpose. An NDA can be terminated by the provider of the confidential information or by mutual consent.
Most NDAs set an appropriate time during which the recipient is bound to keep the information confidential.
Are NDAs enforceable?
When looking at the enforceability of an NDA, you need to consider:
- Is the information confidential? If the information isn’t secret, then it won't be protected.
- Does the confidential information belong to you? If the confidential information doesn’t belong to you, then you can't control its circulation.
- Is the information in the public domain? Your agreement may not protect you if the recipient of the confidential information can show the information was already publicly available.
- Use of the non-disclosure agreement. It is not appropriate to use an NDA to prevent appropriate disclosure. For example, a non-disclosure agreement against an employee can't stop an employee from making disclosures about illegal activity, which is known as ‘whistleblowing’.
- Is the agreement explicit or over-reaching? The definition of what information is confidential must not be too wide-reaching or vague or result in compliance being too onerous or restrictive.
- Can the breaching party pay? The party in breach may have limited funds to pay damages for losses suffered.
- Restraint of trade. A non-compete clause or restrictive covenant in an NDA may not be valid if deemed anti-competitive or unreasonable in scope.
Should I include NDAs in my employment contracts?
The use of NDAs arising out of an employment relationship is lawful, provided the employee has received confidential information. Business trivia isn’t confidential. Information that may have some confidentiality to it can be protected, but not indefinitely. Truly confidential trade secrets can remain confidential even after the employee has left their employment, with an ongoing requirement of confidentiality.
Our employment law team advises on non-disclosure agreements (NDAs), and this article examines how to address an employee's breach of confidentiality.
What if an NDA is breached?
If an NDA is breached, then the following remedies may be sought:
- An injunction is usually the first remedy if a business suspects an intention to breach confidentiality. An injunction order can prevent the defendant from disclosing or using the information. For more information, read our article on how to file an injunction application against a business.
- Damages to compensate for the loss.
- Accounting for any profits the recipient made from exploiting the confidential information.
Are NDAs worth it?
If your business is sharing commercially sensitive data – whether it’s during preliminary discussions, as part of a contract negotiation, or within an employment relationship – a tailored NDA can be critical to safeguarding your interests. But an NDA is only effective if it’s properly drafted, with clear definitions, reasonable restrictions, and enforceable remedies. From deciding whether an NDA is appropriate to negotiating the specific terms and ensuring enforceability, our commercial law solicitors provide expert legal support at every stage. We help you avoid common pitfalls, limit your risk exposure, and protect the information that keeps your business competitive.
