Confidentiality Agreement and NDA guide

In today's competitive business world, protecting confidential information is crucial. This is where confidentiality agreements and non-disclosure agreements (NDAs) are often essential.

Trade secrets, customer lists, marketing strategies, and other sensitive data can give a company a significant edge in the employment context and employees will often have access to these assets. Inventions, IP, designs and data are incredibly valuable in the business context, so need protecting when looking for business partners or investment.

Solicitors for confidentiality and non disclosure agreements

We draft, review and negotiate confidentiality agreements and NDA's for clients, ensuring they are legally sound and effectively protect interests. We also strategic guidance on how to use these agreements and advise and represent clients dealing with breaches of confidentiality and can advise on appropriate legal action.

What is a confidentiality agreement?

A confidentiality agreement is a legally binding contract between two or more parties that outlines what information is considered confidential and restricts how it can be used or disclosed. NDAs are essentially a type of confidentiality agreement, focusing specifically on preventing the disclosure of confidential information to third parties.

What to include in an employee confidentiality agreement?

An employee confidentiality agreement typically outlines what information the employer considers confidential and the restrictions on use and disclosure. Specific categories of information will include :-

• Trade secrets - can include formulas, processes, inventions, designs, marketing plans, and customer lists can fall under this category.

• Customer information - including customer names, contact details, purchase history, and preferences are often considered confidential.

• Financial information - whether internal financial reports, budgets, projections, and pricing strategies can be protected.

• Business strategies and plans - future product launches, marketing campaigns, and competitive analysis might be confidential.

• Proprietary software and code - typically includes source code, algorithms, and technical specifications can be classified as confidential.

• Employee information - whether salary details, performance reviews, and disciplinary records can be protected from unauthorised disclosure.

• Duration - specify how long the confidentiality obligations last after employment ends (reasonable timeframe is key).

• Return of materials - requiring employees to return any confidential materials upon termination.

• Non-solicitation - restrict employees from soliciting your customers or employees after leaving.

• Whistleblower protection - ensure the agreement doesn't prevent employees from reporting illegal or unethical activities.

What to include in a Non-disclosure agreement

When drafting an NDA in the UK, each will be different but core clauses which apply to virtually all NDA's will include :  

• Define the confidential information - include specific examples like trade secrets, proprietary information, customer lists, financial data designs or IP.  

• Obligations - clearly state that the recipient must keep the confidential information confidential,cannot use the confidential information for any purpose other than the agreed-upon purpose and prohibit the recipient from disclosing confidential information to any third party without prior written consent.

• Exceptions to confidentiality - will include information that becomes public knowledge through no fault of the recipient or which the recipient is legally obligated to disclose.

• Return or Destruction of Confidential Information - specify that the recipient must return all confidential information (physical and digital) upon request or at the end of the agreement and destroy all copies of the confidential information.

• Duration of the Agreement - clearly define the duration of the confidentiality obligations but also consider including a survival clause to ensure that confidentiality obligations continue even after the agreement terminates.  

• Remedies for breach - specify that the disclosing party can seek an injunction to prevent further disclosure and perhaps contractually agreed potential damages that the disclosing party may recover in case of a breach.

• Governing law and jurisdiction - specify the governing law, typically English law and the jurisdiction for resolving disputes, often the English courts.

Confidentiality Agreement vs NDA

The terms confidentiality agreement and non disclosure agreement are often used interchangeably in everyday conversation, but there are some key differences in their typical applications:

Confidentiality Agreements tend to have broader scope as detailed above and are most often used in the employee context or as standalone agreements with employees to protect sensitive company information.

Non-Disclosure Agreements are typically more focused on protecting specific confidential information, such as trade secrets, intellectual property, or proprietary business information and are commonly used in business transactions, like mergers and acquisitions, joint ventures, or licensing deals. There's no implied duty of confidentiality between businesses, so a formal NDA is essential to protect sensitive.

Will the confidentiality agreement be enforceable?

Employee confidentiality agreements are generally enforceable under English law, but due to the unequal bargaining position of the parties, under English law, the courts can interfere. Enforceability depends on careful and proportionate drafting which has taken into account :

• Reasonableness - the restrictions on disclosure must be proportionate and necessary to protect legitimate business interests. Excessive restrictions on common activities like discussing salary with colleagues would likely be deemed unreasonable.

• Clarity - the agreement must clearly define what information is considered confidential and the permitted uses and limitations on disclosure. Ambiguous language can weaken enforceability.

• Public interest - confidentiality obligations cannot override the public interest. Employees cannot be bound to conceal illegal activities or information relevant to whistleblowing or reporting serious wrongdoing.

• Duration - while indefinite obligations are generally discouraged, reasonable timeframes to protect sensitive information are acceptable. Excessive durations might be considered anti-competitive and unenforceable.

• Consideration - in some cases, English law requires "consideration" (benefits or compensation) from both parties for an agreement to be valid. Whether this applies to employee confidentiality agreements can depend on the specific circumstances.

What about enforcing an NDA?

Generally speaking, with a business to business relationship, the courts will generally be less likely to interfere with what the parties have expressly agreed. This means it is common for NDA's to have express penalty clauses if they are breached. These clauses can include a liquidated damages clause, with a fixed sum payable for breach and also often express agreement that an injunction will be a suitable remedy and an indemnity for all losses incurred.

A liquidated damages clause is not completely without risk though.if the clause is not drafted correctly, it may be deemed a penalty clause and unenforceable.

The clause must represent a genuine pre-estimate of the potential loss that the innocent party may suffer from the breach and should not be excessive or disproportionate to the actual or anticipated loss.

Don’t over rely on your confidentiality agreements

Confidentiality agreements and NDAs can indeed create a false sense of security for several reasons:

• Overreliance on the agreement - businesses or individuals may mistakenly believe that an NDA shields them from all potential disclosures or breaches, neglecting other security measures or due diligence.

• Limitations of legal protection - an NDA alone cannot prevent information leaks entirely. Factors like human error, malicious intent, or unforeseen circumstances can still lead to disclosures, regardless of the legal agreement.

• Focus on legal remedies rather than prevention - NDAs offer recourse after a breach, but they don't actively prevent it. This reactive approach can leave sensitive information vulnerable until a breach occurs.

Therefore, it's crucial to:

• Use NDA's strategically and in conjunction with other security measures.

• Understand the limitations of legal protection and be prepared for potential challenges.

• Focus on proactive preventive measures rather than solely relying on reactive legal remedies.