Non-Disclosure Agreements – Are they right for your business?

Jun 14, 2022

By Business Law Team

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When operating a business, it is important to consider the protection of your business’ sensitive and confidential information.  One way of doing this is through the use of a Non-Disclosure Agreement (NDA).

At some point in the operation of your business, you will encounter situations in which you will have to disclose sensitive business information to other people.  Such situations may include:

  • dealing with prospective business partners or when entering into joint ventures;
  • entering into licensing arrangements;
  • dealing with prospective franchisees or franchisors;
  • engaging with sub-contractors; and
  • hiring new employees.

To remain competitive and differentiated from your competitors, it may be worth considering an NDA to guard and protect this information.

What is a Non-Disclosure Agreement?

An NDA is a legal contract made between the parties that identifies (amongst other things):

  • the confidential information;
  • how that information can be handled by the parties; and
  • the consequences in the event of any breaches of obligations under the NDA.

In effect, by asking a party to sign a NDA, you are asking them not to share any of the confidential information you have shared with them.

Benefits

There are many benefits in protecting confidential information through NDAs.

Legal Protection

NDAs are written contracts.  This means it will provide you legal protection if your confidential information is shared.  It will also be easier to prove a breach of contract in the event of a dispute.  Essentially, a NDA would give you the right to sue for any losses suffered if a party were to disclose confidential information regarding your business and if the disclosure was against the terms of the NDA.

Encourages Information Sharing

Parties will generally feel more comfortable sharing information with each other when an NDA is in place, as they know that they are protected.  This can result in higher levels of co-operation and productivity for both parties.

Cost Effective

NDAs are generally simple documents and do not involve large costs for the parties involved.

Signalling

The value of an NDA comes from both the legal implications of the document and what it conveys to the other party.  By having a party sign a NDA, you are requiring them to take appropriate measures to protect your business’ confidential information.

Precautions

While NDAs can often be a good idea for businesses, there are a few precautions to keep in mind.

Timing

Relevant parties to a NDA should know their duties and privileges prior to the disclosure of and getting access to any information.  Therefore, it is important that you and the recipient sign a NDA before you disclose any information that you wish to protect.  Confidential information that is shared before a NDA is signed will not be protected by the NDA.  Furthermore, once your relationship has commenced with the other party it may be harder to negotiate the terms of a NDA.

Clarity

A NDA must be reasonable for it to be enforceable.  Therefore, NDAs should not be too vague or broad.

Many NDAs struggle to pinpoint the information that is protected under the terms of the agreement as well as balancing the burdens placed on both parties.  This can severely diminish the legal protections offered by the NDA, as any ambiguity will require a higher level of interpretation by the court if a dispute is litigated.

False Security

It is important to remember that NDAs are not foolproof and you should not only rely on NDAs to protect confidential information.  Although there are consequences for parties that choose to breach a NDA, this does not mean that parties do not breach these agreements.

An individual’s decision on whether to breach a NDA is dependent on numerous factors and they may feel that they would still benefit from taking advantage of confidential information regardless of the NDA and any associated penalties.

However, it is important to note that this does not negate the protections offered by an NDA should you choose to sue the other party for breach.

Conclusion

While NDAs are not perfect solutions for all businesses, they can be a powerful starting point for you to consider when you are deciding how you should protect your confidential information.

If you would like to discuss this article or your circumstances regarding NDAs, you are invited to contact the team at Clinch Long Woodbridge Lawyers.

Important Disclaimer: The content of this article is general in nature and for reference purposes only.  It does not constitute legal advice and should not be relied upon as such.  Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

 

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