Non-Disclosure Agreement
Business interactions and relationships require dealings with third parties and in the process, there might be a need to share sensitive confidential information with said persons at some point during negotiations.
It is vital that the information being shared is protected and that there is a legally binding agreement that restricts the sharing of confidential information or an organization’s sensitive data by the parties involved.
This legally binding agreement is termed a Non-Disclosure Agreement and this compact article expresses all you should know about the NDA including how it affects you directly.
What is a Non-disclosure Agreement
A non-disclosure agreement is very essential in every business relationship. It is regarded as a contractual agreement that solidifies a confidential relationship between two or more parties. This legally enforceable agreement (also termed a confidentiality agreement, non-disclosure contract or confidentiality disclosure agreement) is signed by the parties involved to ensure the security and safety of any sensitive information being shared.
The relationship is signed between an individual or company who has or owns the sensitive information and another party who will obtain the information where one or both parties involved are required not to share or disclose the shared information. The individuals, by signing the contract, accept the responsibility to protect the confidential information and agree to refrain from disclosing all or parts of the shared information with unauthorized persons.
This type of agreement is common to businesses interacting with other businesses. The main merit of an NDA is that it aids data sharing between individuals and businesses without the fear that the data will be revealed or circulated to other people, including competitors. If it is, then there is a penalty for defaulters.
In business settings, an employer might ask a new employee or a contract worker to sign an NDA to ensure the security and privacy of the organization’s sensitive information. It is important to note that a non-disclosure agreement has the company’s data protection as its focal point and this is its main distinguishing feature from other agreement types.
Understanding a Non-Disclosure Agreement
As stated in the previous section, NDA’s are mandatory for business discussions or negotiations that involve the exchange of sensitive information either between individuals or businesses. This is to protect the company’s interest and prevent sensitive data from getting into the wrong hands — unauthorized persons or competitors.
The NDA serves a range of business relationships. Some of them include;
Some companies make it a must for any new hire, who will likely have access to the organization’s confidential information, to sign an NDA.
The language of the confidential agreement places a restriction on unauthorized release or disclosure of information to third parties.
Also, NDA’s have been employed by organizations sourcing for funds from investors. This protects any information divulged during the pitch and ensures that competitors or the general public don’t have access to business secrets or plans.
What is the purpose of a Non-Disclosure Agreement?
There are two major reasons for the NDA which are confidentiality and protection of information.
Confidentiality of information entails the privacy or non-disclosure of sensitive information from unlawful/ unauthorized access or theft. This type of agreement regulates viewing, sharing or utilization of data. This data is mostly characterized by information meant to be private from the general public. Confidential information is shared with a select few for a specific purpose and for this reason, a non-disclosure agreement ensures the privacy or confidentiality of this data.
Protection of information entails the safety and security of sensitive information in order to keep whatever is being shared within the bounds of the business relationship and prevent it from getting into the hands of competitors, unauthorized parties, or the general public. Signing an NDA legally binds parties involved with the duty of protecting the information. Any information disclosed unlawfully or any breach of contract attracts legal ramifications. Also, NDA protects the patent rights of a product or invention. The inventor can work on developing their product or innovation without worrying about their idea or concept being stolen. NDAs protect your business and its data so that even accidental breaches are covered.
When do I need an NDA?
There are many reasons why you would need an NDA, but the major reason would be that you’re looking to protect sensitive information. Major situations or business relationships that require a confidentiality agreement include;
Employees/ New hires
Employees in your organization will likely have access to sensitive or confidential information pertaining to your company or your clients. For this reason, an NDA would ensure that they protect your information even after they separate from your company.
Business Partnerships
Collaborating with other individuals or businesses, or looking for new partners, can require you to divulge private information as regards your business. An NDA has the capacity to protect your organization by restricting the sharing of information and indicating what can and cannot be shared to avoid any accidental breach.
Products or Concepts
In any negotiation involving the sale or licensing of a product or concept, it is vital that you protect your information and data — technical, financial, or any other patented material — by signing a confidentiality agreement.
There are other situations that demand a non-disclosure agreement such as onboarding new clients, mergers and acquisitions (M&A), pitching your business to potential investors, employing contractors, amongst others.
Types of Non-Disclosure Agreement
NDA’s fall into two major categories: Mutual and Unilateral agreements.
Mutual Non-disclosure Agreement
In this type, both parties concede to protect any sensitive or private information exchanged during negotiations. In a mutual NDA, the parties involved are bound by the contract that restricts them from sharing confidential information.
Unilateral Non-disclosure Agreement
In a unilateral NDA, the responsibility to protect confidential information rests on one party. An example of this is an employment contract. A new hire is required to sign an NDA restricting them from sharing any information acquired on the job.
A special type of NDA is the Non-Mutual Agreement
This type pertains to new hires who would be granted access to sensitive company information. In these cases, the employee agrees to not reveal confidential information.
Advantages and Disadvantages of a Non-disclosure Agreement
The merits of an NDA have been outlined in the previous sections. Other merits include the clarity and clearness that an NDA brings to the business relationship. The agreement specifies what is allowed to be shared and what is not and this represents a cost-effective way of protecting information. Also, the consequences or legal ramifications are pointed out should there be any breaches or leaks.
However, there are a few disadvantages or drawbacks associated with confidentiality agreements. The primary drawback of an NDA is the issue of trust. A confidentiality agreement may project the idea of doubt or mistrust, employees, partners, or investors may take it to mean that they are not trusted, and may result in no deal. In addition, a breach of agreement incurs penalties or legal action and the inconvenience of a lawsuit might discourage people from signing one or agreeing to the partnership.
On a final note:
If you’re tasked with drafting a non-disclosure agreement, keep in mind that it is required to be as detailed and clear as possible, expressing in clear detail what information should and should not be shared. And if you’re to sign an NDA, take time to peruse its content and understand what it demands. If you find any vague terms, ask questions and clarify any unclear information.
