When Do I Need to Use a Non-Disclosure Agreement (“NDA”)?
It's quite likely you'll come across one of these agreements, the longer you're in business.
While these agreements are really useful, they can be somewhat intimidating to sign. Keep reading to learn exactly what a Non-Disclosure Agreement is, what it protects and when you should consider using one in your business.
What is an NDA?
A Non-Disclosure Agreement ("NDA") - sometimes referred to as a "Confidentiality Agreement" - is a legal document that is used to protect certain confidential information of either one or both of the parties, When it's to protect both parties, it's often referred to as a 'mutual' non-disclosure agreement'.
Often it is a standalone document that is used at the outset of a potential business relationship. For instance, if you need to share certain information with a potential contractor or business partner, it would be a good idea to sign a mutual Non-Disclosure Agreement so that you could share information with each other to see if working together would be a good fit, without worry that the information you shared would be shared outside of those private discussions.
In other situations, the language of an NDA is incorporated right into another contract signed between the parties. This is common in client services agreement, to ensure that any information that the parties gain access to throughout the course of the relationship remains confidential.
In either case, an NDA is used in any situation where you need to disclose confidential information and want to ensure it remains that way!
What Constitutes Confidential Information and Why Its Protection Is Important
Confidential information is non-public proprietary information that is a valuable business asset and hence, its protection is really important to you. It would be easy to think you could always just keep that information stored away and protected, but in reality, sharing information is a necessary part of business!
Confidential information could include things like:
If you are using an NDA, it's useful to tailor the language in the agreement so that it reflects the type of information you are going to share. For instance, if you are a coach building out an online course, and are hiring a virtual assistant to help work their magic and bring your course to life, you would want to ensure that your program details, including content, launch strategy, resources, financial records, passwords etc., as well as your email list details were all included as part of the listed information. A good NDA will also include catch-all language as well, so not to worry if you don't mention everything.
If one of the parties shares information that wasn't specifically listed, but one party intended to keep confidential, a court will typically make a determination as to whether or not something should have been protected by the NDA by assessing whether the information was generally known to others, or able to be acquired by another means other than by the defaulting person disclosing it.
A court would also examine the business value of the information in deciding whether the information should have been protected and consider such things as the economic value to the business, value to its competitors or that information providing an advantage over that business' competitors, or how much time, energy and resources were used by the disclosing party to protect that information.
Confidential Information would not include information that is general public knowledge. Even if you have an NDA in place, you still should take certain measures to ensure your information remains confidential, by only disclosing it to people on a must-know basis.
Reasons for a Written Confidentiality and Non-Disclosure Agreement
So other than setting out what information is considered confidential by a disclosing party, here are some other reasons why you might want to consider entering into a written NDA (versus the ol' pinky swear promise deal):
- Written contracts are easier (and less expensive!) to enforce than oral agreements or relying on common law.
- You have more flexibility in defining what is confidential and avoiding confusion over what is considered to be confidential, and what might not be.
- You can specify what is expected of the other party regarding the treatment of confidential information, and the steps they need to ensure it remains protected (like having their own sub-contractors sign a similar form of agreement)
- Written NDAs are often required under other agreements with third parties (such as agreements with suppliers and licensors) when relevant information is intended to be disclosed.
- They are a good way to show you take confidentiality seriously and helps develop trust between parties!
Having a Non-Disclosure Agreement is an important document to rely on, in the event that information was improperly shared.
Instances where you would want to use a Non-Disclosure Agreement
Here are a few instances you might encounter where it would be appropriate to consider signing, or having the other party sign an NDA
- Hiring a contractor or an employee where that person will gain access to confidential information about your business
- When you are thinking about collaborating with another business owner on a specific strategic project (like an online course or marketing collaboration) where you need to share your business metrics, marketing tactics and strategy or know-how to see if the collaboration is a good fit for your business
- When you are being hired by a client, and in their form of client agreement it requires you to ensure any subcontractors you’ve hired sign an identical or similar form of NDA before the working relationship starts (you are responsible for your subcontractor's actions!)
- In the course of buying or selling a business, you would want to ensure that an NDA is signed before any information is disclosed to the purchasing party;
- If you are seeking investors for your business, you’ll likely need to disclose sensitive information about the inner workings of your business, including financial data, salaries, marketing strategies, etc.
In case you're worried, you can backdate an NDA if the other party is agreeable to signing it, you should just ensure that your NDA has language that includes any previously disclosed confidential information. As you might have gathered, the best practice is to ensure you have one signed upfront before any information is shared!
Since the need for a Non-Disclosure Agreement comes up in lots of different situations, we've included a template in all of our bundles that can be easily customized to include the unique information you want to protect in your business.