A confidentiality agreement (also called a Non-Disclosure Agreement or NDA) is a common commercial law instrument in business negotiations. Generally, agreements can be one-way or mutual. A one-way confidentiality agreement is used if you are only disclosing information while a mutual confidentiality agreement is used if both parties are sharing information.
An agreement seeks to ensure that the confidential information – such as important business documents, plans, trade secrets, details about products and inventions – remain confidential between the two parties.
You do not need to ask everyone to sign a confidentiality agreement for every meeting or project – that could potentially frustrate partners and even stifle innovation. Keep these reasons in mind when deciding whether your situation needs a confidentiality agreement.
Reasons to Use a Confidentiality Agreement
Employees and Staff
As people who are deeply exposed to the inner workings of your business, employees will be aware of some of your most sensitive information. It is standard practice to have employees sign a confidentiality agreement (usually as part of their employment agreement).
Keep in mind that employees are generally not expected to have an understanding of confidentiality and intellectual property law. It is important to back up an agreement with corporate policies and training to ensure that employees understand what counts as ‘confidential’ and how they should handle and protect the businesses’ information.
Dealing with Outside Parties
Independent third parties such as customers, suppliers, independent contractors, and software developers, do not necessarily share your professional obligations or vested interests.
These parties should generally have no reason not to sign a reasonable NDA, and if they seem unwilling, it may be a good idea to talk to a legal advisor to review your stake and potential risks.
When Are Discussions Turn to “How”
The initial stages of discussions and negotiations often don’t require confidentiality. Discussing topics such as what your enterprise does, its market position or general financial position are the kind of things anyone can find out on the company website or in its annual report.
Whenever talks shift to details, such as about “how” your company has reached its market position, its future plans or “who” you work with, a confidentiality agreement becomes a good idea.
In particular, as soon as you provide information to another party, such as documents, data files, internal reports, and specifications, the risk of having that information copied, reworked, or otherwise used becomes tangible.
Establishing a Legal Position
A confidentiality agreement can set rules and expectations, but at the end of the day, nothing can force the other party to comply. In the event of an unauthorised disclosure of your confidential information, the only remedy is to go to court.
Having a solid confidentiality agreement, and ensuring that the expectations are clearly explained to all parties, will be a crucial foundation for supporting your case should you go to court.
Forming a Good Confidentiality Agreement
Not having a confidentiality agreement in place can make defending your rights much harder when confidential information is shared or used in a way that you weren’t expecting.
A good NDA restricts the use of the ideas and information to a specifically permitted purpose. This could be the evaluation of your idea or the discussion of a joint venture. Specify that purpose in the NDA as precisely as you can.
We understand how important your business is to your world. When you walk into our Eastern Melbourne firm you will be greeted by a friendly face and the advice of a professional solicitor.