Non-disclosure agreements (NDAs) have been getting a bad rap recently – and justifiably so. The #MeToo movement shone a spotlight on how NDAs have been misused to intimidate and silence whistleblowers and victims of crime in the entertainment industry.
Even when they’re not being used for such nefarious ends, they are often not fit for purpose, or they are signed or issued without the consideration they deserve. But employed correctly, they can become a powerful tool in your armoury to ring-fence the value of your confidential information in a range of scenarios. Use them badly and you could be signing up to unreasonable restrictions.
Do not automatically sign, send or agree to something unless you are certain it is needed
Here, we will look at the issues to be aware of, whether you are being asked to sign an NDA, you are issuing one for someone else to sign, or both.
Who needs one?
The first step is to establish if an NDA is needed. If you are issuing the document, you should be clear about what you want to protect. If you’ve received one, do you agree that it’s valid or necessary? Is it trying to cover information or knowledge that has already been disclosed? Do not automatically sign, send or agree to something unless you are certain it is needed.
Structure
There are different types of NDA. Most are unilateral – that is, the disclosure of information flows one way. If you’re the smaller of the two parties, you may be asked to sign a unilateral NDA, while also being the party disclosing the key information. If that’s the case, ask for a mutual NDA.
One size does not fit all – the more specific you can be, the more fit for purpose your NDA will be
It can be a quick fix for balancing up the obligations of both parties. If an NDA is unilateral, check that there is some ‘consideration’ passing to the recipient of the information to balance the obligations being requested. If not, or you are being asked to sign a deed, you should consult an IP lawyer.
Defining terms
One size does not fit all, and the more specific you can be, the more fit for purpose your NDA will be.
If you are issuing an NDA, define the ‘confidential information’, generally and specifically (as far as you can), and who the ‘parties’ are. In addition, be explicit about who the receiving party can further disclose the information to (eg advisers).
If you have received an NDA, look closely at the defined parties. Sometimes there are multiple parties and you might be expected to owe a duty of confidentiality to a number of international corporations, their affiliates, contractors, agents or directors. Try to narrow these down and identify them as far as possible, ideally specifying the one party you want to receive information from and to whom you owe the obligation of confidentiality.
Are you being expected to sign as yourself or as a formal representative of your business?
If the other party is based outside England and Wales, take care about the law and jurisdiction clause (usually the last one). Specify the ‘laws of England and Wales’ and, if the other party is based in a different country, consider whether you might want to enforce the NDA in that jurisdiction’s courts.
Are you being expected to sign as yourself (an individual person), or as a formal representative of your business? With smaller companies, partnerships and entrepreneurial businesses, these lines can become blurred, so be careful about your liability.
‘Permitted purpose’ and ‘term’ are rarely clearly defined. Recipients of NDAs in particular should be sure to define the permitted purpose clearly. If there are certain compulsory uses that the disclosure cannot restrict, it is important to make these clear and let the individuals know what they are allowed to disclose.
Be organised and educate your staff, and be clear about what information is confidential
The period of protection is also key, and often gets confused with termination of the NDA. Make sure you understand the difference and be realistic about the need for long-term restrictions and the ways in which information might fall outside the restriction net.
Hidden traps
It is very common for businesses to hide clauses in the NDA that are not relevant to confidential information. These might include clauses relating to ownership of IP rights or non-compete restrictions. Insisting on a mutual agreement will likely reduce the instance of these clauses – but always check that there is true mutuality. In either scenario, these types of clause should be deleted.
Keep your house in order
To maximise the value of your confidential information, and protect that of other people, it is important that you comply with the level of protection you expect from others.
Be organised and educate your staff, and be clear about what information is confidential. Business policies about best practice for email communication, home-working and the use of personal devices will help but should be clearly enforced.
Internal processes should back this up and enable confidential information to be traced and controlled. This can be as straightforward as using limited-access folders, protecting your files with passwords and distributing PDFs rather than Word documents. If a relationship covered by the NDA ceases, ask for the information you have shared to be destroyed or returned, and confirm this with a written undertaking. Do the same if you are the receiver.
Internally, be aware of your contracts and your officers’ conduct. NDAs (including clauses in employment contracts) should not be used to bully or threaten. Foster a working environment where employees and managers feel safe and empowered to talk.
NDA guidance
In a bid to counteract the misuse of NDAs, the Solicitor’s Regulation Authority has issued a warning notice with guidance for solicitors. This is also a useful guide for anyone drafting NDAs. The warning notice covers the use of NDAs in any form of agreement or contract, or a clause within a wider agreement or contract, under which it is agreed that certain information will be kept confidential.
The guidance is relevant to all NDAs and covers both the terms or proposed terms of the NDA and the solicitor’s conduct in handling the matter. Acas has also issued some straightforward and clear advice.
