A Non-disclosure agreement, or confidentiality agreement, (NDA), is a legally binding document which establishes and outlines a confidential relationship.
To effectively protect all parties involved, there are 9 key elements which an NDA should cover.
What needs to be included in an NDA?
There are 9 elements and clauses which should be included in an NDA, including:
1. Definition of the confidential information
You must clearly outline what information you want to remain confidential. This should specify exactly what may be considered confidential information e.g. personal conversations, emails, letters, hand-written notes, or other.
This is your opportunity to ‘cover all bases’ to ensure you aren’t leaving any gaps where your business’s confidential information can be leaked without consequence.
2. The parties involved
An NDA must define all parties who may be privy to confidential information. This includes the Disclosing party, the Recipient party and any other third-party who must be included – such as the Recipient party’s accountants or attorneys.
Any additional third-party contractor - such as a graphic designer – must also be included in the NDA.
3. The terms and duration of the agreement
All NDAs must clearly define the timeframe from which the confidentiality agreement begins and how long the information must remain confidential for.
There is no standardised timeline for NDAs as each agreement’s details are unique to the situation and relationship of the parties, however it is generally accepted that the duration of confidentiality must be reasonable and realistic. E.g. NDAs regarding trade secrets might require confidentiality for 10 years or more, but NDAs regarding smaller business details might be irrelevant after 12 months.
4. Information Disclosure Clause
The Disclosing party must specify what acceptable use, if any, of the information disclosed to the Recipient party is. This section must clearly outline the purpose of the agreement and the conversations between the parties, including third parties.
5. Legal Obligation to Disclose Clause
While rare, there may be a circumstance where a party might be legally required to disclose information protected by the NDA. This will generally come from a government or administration agency, or through the court system.
To account for this, it is best practice to include an acknowledgment that either party might be legally required to disclose all or some of the information covered in the NDA and that doing so will not be violating the agreement. You may also choose to include requirements for if this situation ever occurs, such as the Recipient party must inform the Disclosing party that they are legally required to disclose information, when they must disclose the information, and to whom.
6. Return of Information Clause
Most NDAs should include if and how the Recipient party should return and/or destroy the sensitive information from the Disclosing party.
7. Jurisdiction Clause
The NDA should specify which court would preside over the case should there be a breach in contract. While rare, it is possible that a breach or misunderstanding of the terms of the NDA may occur and so it is best practice to anticipate and cover what should happen should a conflict emerge.
8. Remedies Clause
Following the clause covering who would manage the conflict in the case of a breach, it is also best practice to define any expected or acceptable remedies in the case of a breach in confidentiality.
This can be as simple as stating that the Disclosing party preserves the right to seek equitable remedies to compensate for the breach, or clearly outlining exactly what the remedy would be.
It is important for both parties to understand expectations should a breach occur as this might sway the Recipient party from signing the agreement if they feel it is unfair.
This can also include expectations of how legal fees will be managed and paid for should lawyers be called in to manage the remedy process.
9. No-binding, No Obligations or Termination Clause
A Non-binding, No Obligations or Termination clause acknowledges that neither party is bound to the agreement indefinitely and both parties may terminate the agreement at any point.
This ensures that both parties have an understanding that each may withdraw from the relationship at any point, provided they abide by any relevant laws. This is particularly relevant when the agreement refers to a potential merger, partnership, temporary collaboration, or project.
NDAs are a critical component to many business relationships as they protect the business and their counterparty from the consequences of the release of confidential information.