NDAs have been put firmly in the spotlight after the Weinstein saga and the accusations against Sir Philip Green and Donald Trump. The suggestion is that the technique was used to ‘hush up’ certain allegations.
With so much media and parliamentary scrutiny, the use and enforceability of NDAs have inevitably been brought into sharp focus.
What is an NDA?
While the use of NDAs in today’s business world doesn’t generally tend to be as sinister, the best way to keep legitimate business information confidential is not to disclose it in the first place. However, if you need to share confidential information, putting an NDA in place can be helpful.
An NDA is a legally binding contract under which the parties agree to share private and/or confidential information and not to disclose that information for a defined period.
It is an important legal tool businesses use to protect business secrets and regulate and record the flow of confidential information, which can be one way or mutual. NDAs, therefore, come in all shapes and sizes.
However, at their core, they have one clear objective: to identify confidential information and establish how and in what context that information can and cannot be used by reference to a specific permitted purpose.
When are NDAs unenforceable?
The recent scandals and attendant public debate serve as a reminder that NDAs may not always be enforceable – even in circumstances when all contractual elements are present to create legal obligations. Sometimes, a court refuses to enforce a non-disclosure agreement that otherwise seems legally binding.
Seven recommendations for ensuring your NDA is enforceable
- Name the correct parties: Identify and contract with the correct legal entity by listing both its legal and trading name, as well as its registered office address and company number.
- Ensure binding authority: Check that the document is signed by an appropriate director or officer of the counterparty who has the authority to sign on its behalf.
- Establish what information is protected: Clearly define ‘confidential information’ and limit confidentiality to information that must be kept a secret. Although it may be tempting, avoid using a catch-all clause.
- Consider the duration: Think about how long the confidentiality should last for. Between three and five years is common.
- Take restraint of trade into account: Ensure that any non-compete clause or restrictive covenant protects some valid and legitimate interest linked to the NDA. Otherwise, it may be deemed an unreasonable restraint of trade.
- Check for permitted disclosures: Expressly recognise that the NDA does not prohibit certain disclosures such as information:independently relating
- provided by a third party already known before the NDA or in the public domain developed
- to professional misconduct – such as sexual harassment towards employees or clients protected by law reportable to regulators and/or law enforcement agencies connected to ongoing criminal investigations and prosecutions
- Take legal advice: Ensure that all parties have obtained independent legal advice before signing the NDA, and include a statement to this effect to avoid the suggestion that any party took unfair advantage.
Even when an NDA is enforceable, it must prove that the counterparty breached its terms by making the information public – which can be difficult.
For further advice and information on NDAs, call Evangelos Kyveris today.
Note: This is not legal advice; it provides information of general interest about current legal issues.