Confidentiality and Non-Disclosure Agreements
In today’s business world confidential information is a vital asset. Confidentiality Agreements are increasingly common. Ensure you have the right solicitors and the right Agreement for your business needs.
As with many legal documents there are now numerous templates available online at low cost. Whilst these often provide a useful framework, as the saying goes, “the devil is in the detail” and this is definitely the case when it comes to confidentiality or non-disclosure agreements.
The first and key thing to consider with a confidentiality agreement, which cannot be defined in a standard template, is the nature of the confidential information being clearly specified and it’s permitted use.
When are confidential Agreements used?
Common uses include:-
- for intellectual property such as designs, products or software.
- where parties are negotiating a business transaction such as a business sale or a joint venture.
- where a business discloses financial information to another business.
- where a sales agent has access to a customer database.
- as part of an employment contract as employees increasingly have access to confidential data and information and it may be located on myriad different devices which are difficult to accurately track such as smartphones, tablets or laptops.
Possible pitfalls with confidentiality agreements
- the correct parties to the agreement – given that damage can be done which is irreparable if information has been dissipated, it is worth considering whether to insist that individuals as well as corporate entities are bound. This increases the protection to the disclosing party.
- what happens when the agreement ends? – many confidential or non-disclosure agreements specify how and when the agreement will no longer apply. It may be time based or for example end when negotiations terminate. At that point, it is important to ensure that all data and information are returned. Specific provisions should include return of the data in all formats. The agreement should also specify clearly that no copies of the information are permitted.
- ongoing commitment to confidentiality – taking the example of an employee, what happens when the employee leaves? Consideration should be given with any confidentiality agreement to a period in the future such that the confidentiality obligation is on-going. There is a balance to be struck however, because simply including a blanket indefinite or excessive period for ongoing confidentiality may be considered unenforceable by a court if tested.
- staged release of information? – as with any form of contract, whatever that contract says, if it is breached, the damage may already have been done and relying on the court system and remedies is unpredictable, both legally and in terms of being able to enforce by getting money from a party in breach. A better form of protection may be only release information when strictly necessary. A carefully considered and drafted confidentiality or non-disclosure agreement may detail the drip feeding of information at stages or milestones when the other party has first made commitments, financial or otherwise which merit further disclosure.
- proportionality and penalty clauses – there is an obvious temptation to believe that the best way to ensure the party receiving your crucial information complies is to include a clause which would deter breach, such as a liquidated damages clause whereby any breach would mean an agreed amount of damages, suitably high. Unfortunately, under English law such clauses are generally unenforceable (penalty clauses). Any liquidated damages clause would need to have some proportionality, with a clear rationale as to how it has been calculated, if it is to stand scrutiny in any dispute.
- injunction – given that damage can be done extremely fast with breach, a carefully worded clause stating that the receiving party agrees that in the event of breach the disclosing party should be entitled to an injunction restraining copying, disclosure and so on should be considered. Not doing so may turn out to be a costly mistake. Such a clause ought also to include a clear provision that that in the event of breach in any action to enforce the NDA shall be entitled to reasonable costs and legal fees.
- not including a suitable severability/illegality clause – given the risks that some clauses may not be fully or even partially enforceable if they are “over the top”, the last thing you want is for the entire agreement to be invalidated in that situation. A severability clause will ensure that if some aspects of ten agreement don’t help you, other clauses can still stand and apply.
- not including a “no implied waiver” clause – it is a common mistake to inadvertently waive a breach of contract. A party may breach a contract but the other party may still want to do business with them, and may be confused and delay a decision as to whether to act on the breach, which then results in that innocent party, in legal terms waiving the breach. A clear clause stating that delay or other specified actions by the innocent party do not constitute waiving a breach is important.
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