Whether it’s a tech startup pitching new software, an agency hiring a freelancer,  or an entrepreneur preparing for a strategic acquisition, securing confidential information is vital for everyone.

So, how can you ensure your business’s sensitive information isn’t in the wrong hands? You need non-disclosure agreements (NDAs) to protect your private data and establish trust among parties. 

Let’s learn all about confidential NDAs and best practices with some sample templates to draft legal contracts for your upcoming business transaction.

What is an NDA?

NDAs, or non-disclosure agreements, are legally binding contracts that develop a confidential business relationship between parties, ensuring that sensitive information stays private. Also known as confidentiality agreements, NDAs are all about protecting sensitive details. 

For instance, employers often require new employees or contractors to sign NDAs to protect proprietary information.

Thus, NDAs give parties the peace of mind to share data without the risk of unwanted disclosure.

Source: Pardalis & Nohavicka Lawyers via Platform X

Also Read: NDA vs. Confidentiality Agreement: Which One to Choose?

Why is NDA important to businesses?

NDAs play a vital role in keeping mutually shared, sensitive information safe for businesses and individuals. You can use them in various situations, including license negotiation, acquisitions, employee recruitment, collaborating with contractors, and pitching to investors. 

A well-defined NDA ensures the receiving party understands and respects the sensitivity of your critical business information. All parties maintain legal relations when they sign this legally binding contract.

Thus, both parties understand what is and isn’t right to disclose with outside entities. Clear expectations allow you to collaborate confidently and stress-free and establish long-term business relationships with other parties.

Parties will also understand the consequences, as NDAs include clauses constituting a violation. If there’s any breach of contract, the disclosing party can take legal action and sue the recipient for damages after they sign an NDA. 

Sample NDA template

While NDAs vary based on purpose and context, several key provisions form a contract’s foundation.

First, the NDA should clearly identify the parties involved, i.e., who’s the information provider and the recipient. It must also specify the confidential information and how it should be handled, along with any exceptions, such as information disclosed in court proceedings or investigations. There is also an essential term provision that defines how long the agreement will remain in effect.

Another important element is the return of confidential information. This clause ensures that, upon completion or termination of the agreement, the recipient will delete or return all confidential materials. 

Additionally, the NDA should detail the governing law and jurisdiction, clarifying which legal standards apply in case of any dispute. This can include dispute resolution mechanisms to simplify conflict resolution. It’s also vital to outline each party's obligations, penalties for breach, and the right to seek an injunction to prevent any unauthorized disclosures.

“The absence of contract templates leads to non-standardization and makes contracts prone to errors. The legal team, therefore, is required to delve deep into contracts and proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.”

~ Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies

You can find the free NDA template below. It's important to remember that while the nature and scope of NDAs may vary, these core elements are crucial to protecting shared confidential information effectively.

Download your free NDA template here!

Also Read: What is a Unilateral Non Disclosure Agreement (NDA)? (+ Free Template)

Why do you need an NDA?

Here are five key scenarios where you can prepare an NDA:

Products: Selling or licensing products or technology requires sharing technical and financial data. An NDA ensures this proprietary information will stay protected.

Employees: Employees are often given the task of handling confidential data. An NDA prevents them from disclosing it during or after their employment.

Partners: Discussions with potential partners or investors usually involve sensitive details. An NDA keeps this information secure.

New Clients: Onboarding clients might give access to their private data. An NDA defines what must stay confidential to avoid legal issues.

Mergers and Acquisitions: Selling a business involves sharing critical data with buyers, brokers, and intermediaries. An NDA ensures confidentiality throughout the entire process.

NDAs are also significant when working with vendors, seeking investors, or engaging in joint ventures.

Types of NDAs

There are three types of NDA to choose from based on your business data-sharing goals and restriction needs. Understanding the different forms will help you advocate for terms and practices that best protect your interests.

Unilateral NDA

Also known as one-way NDAs, only one party discloses confidential information under this type of agreement. It means one party shares the information while the other must keep it confidential. 

Companies use this type of NDA while sharing sensitive business information like trade secrets, supply sources, price structures, operational plans, business development strategies, and inventions.

Some common use cases of unilateral NDAs are:

• Employer-employee NDA
• Company-contractor NDA
• Inventor-evaluator NDA
• Seller-buyer NDA

Bilateral NDA

Bilateral or mutual NDAs require both parties to disclose confidential information and set limitation terms. You can opt for this type of NDA to keep the conditions relatively “fair and balanced” by outlining that a recipient could later become a disclosing party or vice versa.

Companies typically prepare bilateral NDAs while mutually sharing information during company sales, collaborations, joint partnerships, mergers, and acquisitions.

Multilateral NDA

Multilateral NDAs are signed between three or more entities where at least one of the parties shares sensitive information with the others. After signing this multiparty NDA, all receiving parties should keep the disclosed information secure.

Although uncommon, companies prefer this type of contract only during complex, negotiation-heavy partnerships between multiple enterprises, such as trade agreements.

Source: Eureka Nirmani Jayaweera via LinkedIn

Also Read: Clickwrap NDA: Everything you Need to Know

Requirements for an NDA

Despite differences, all NDA types hold the same importance regarding enforcement and violation penalties. While NDAs can be modified to fit specific needs, there are six important requirements of an NDA.

Participants in the agreement

Every NDA needs to clearly identify who are involved parties. This could be a specific individual, all employees within a company, or any representative of an organization. Companies with complex legal structures must be precise. This ensures the right legal entity is named to maintain ownership of the information.

Defining confidential information

Pinpointing what is confidential is a critical step. The NDA should explicitly outline what information is confidential, as assumptions might lead to conflicts in future. So ,ensure using broad definitions, such as any details linked to a company's R&D department.

Exclusions from confidentiality

Sometimes, it’s easier to state what isn't confidential. Companies may specify exceptions to avoid any doubt and clarify what information can be freely shared.

Permissible uses of information

NDAs often include how shared information can or cannot be used. For instance, a company may disclose its processes but prohibit their use for competitive advantage or personal gain.

Time frame

NDAs should include a time limit on confidentiality based on the nature of information, industry norms, parties involved, collaboration needs, and jurisdiction rules.

Additional provisions

Lastly, NDAs may outline the applicable laws, dispute resolutions, or which party covers legal fees if issues arise. This section ensures the NDA is comprehensive and aligned with industry or government standards.

What are the exclusions and limitations of an NDA?

• Challenges in Enforcement: Enforcing an NDA can be a challenge, especially if information has already been disclosed or the scope of the NDA is too broad. Even when a breach has been identified, proving its damages or obtaining an injunction can be challenging for you.
• Public Interest: NDAs cannot keep the information private when it is associated with the public interest. A few examples include illegal activity, public health and safety, or government transparency.
• Protection is Limited: An NDA will only protect the information defined within the agreement. If certain details are not covered or disclosed in ways the NDA contract doesn’t prohibit, they may not be protected.
• Time-limited Protection: NDAs usually have a time limit. This means that they only protect information for a limited period. Once the NDA expires, the confidentiality obligation will end. Then, the information can be disclosed to anyone freely.
• Jurisdiction is Limited: NDAs are mostly governed by the laws of a specific jurisdiction, which sometimes limits their enforceability in other regions. Cross-jurisdiction enforcement can be difficult if the parties are located in different areas.
• Reputation Risks: NDAs can sometimes attract negative attention or damage a company’s reputation. This is especially true if viewed as an attempt to cover up the wrongdoing or silence victims of harassment or discrimination.

Remember, not all information is covered by NDAs, including public knowledge records, like SEC filings or company addresses. In such cases, courts can interpret an NDA in ways that may surprise the parties involved. 

The NDA no longer holds if confidential information is exposed through legal processes, like a subpoena.

Besides, managing too many NDAs can quickly lead to chaos for any organization. Handling each one individually becomes tough when the number increases.

Here comes the role of a standardized and flexible NDA. However, creating one that fits all needs requires time, effort, and often professional assistance to ensure it is solid and effective.

Advantages and disadvantages of NDAs

The purpose of NDAs is to keep your company’s sensitive information private. Whether it's new research, financial information, or future plans, an NDA will ensure that key data stays secret.

While NDAs prevent leaks, they can also create a few issues. Signing one can cause mistrust, which sometimes impact relationships. For example, when employees know they are restricted about something post-employment, it can make them hesitant to take the joining offer. 

Additionally, a breach of an NDA can lead to complicated legal battles.  Drafting and managing NDAs can be a little complex certain times.  For instance, HR and legal teams often face hurdles when creating NDAs for global teams due to several reasons. These include varying laws across regions, different data protection rules, getting legally valid consent and signatures, and keeping NDAs current.

Here’s a quick roundabout for pros and cons of signing an NDA.

How to Enforce an NDA?

Enforcing an NDA is not simple, but there are clear steps companies can take to protect their sensitive information. Here is a streamlined approach:

Identify the breach

The first step is to identify when the NDA has been breached. You can do it by monitoring employee activities or reviewing communications. This can also be done by conducting an internal investigation.

Sending a cease and desist

Once a breach is found, you can send a cease and desist letter. It will clearly state what was violated. Not only that, but it also demands an end to any further disclosures and sets a deadline for compliance.

Seeking injunctive relief

If the breach continues, you can also take legal action. You can do it by filing a restraining order or an injunction to stop further leaks.

Pursuing damages

If the breach has caused harm like lost profits or damage to your reputation, you can also consider pursuing monetary damages through a lawsuit.

Considering alternative resolution

In some cases, it might be faster and more cost-effective to go through arbitration or mediation rather than litigation.

“The keys to an enforceable user agreement come down to "notice " and acceptance” by the user.”

~Sterling Miller, CEO and Senior Counsel Hilgers Graben PLLC
Ten Things: Website User Agreements

Remember, the exact process can vary based on the NDA terms and local laws, so it’s always smart to consult a legal expert to ensure you’re on the right track.

Best practices for NDAs

Drafting and managing NDAs can be a little complex. In fact, 61% of private market professionals say negotiating NDAs takes time away from more strategic tasks, and the process becomes even more complicated when you are dealing with international clients and employees.

HR and legal teams often face additional hurdles when creating NDAs for global teams. These include varying laws across regions, different data protection rules, getting legally valid consent and signatures, and keeping NDAs current.

Find below some of the best practices for managing NDAs globally -

Understand jurisdictional differences

A common compliance mistake businesses make is ignoring jurisdictional differences. Not aligning with local laws when drafting NDAs can lead to serious risks, like unenforceable agreements that expose sensitive info and trigger legal trouble.

When working globally and drafting NDAs, keep these points in mind:

• Legal Compliance: Ensure your NDAs are aligned with local laws to avoid potential breaches or contract disputes. Remember, compliance also extends to data protection laws like GDPR if personal data is involved.
• Cultural Sensitivity: One must respect local customs and norms to establish positive relationships with international partners and employees.
• Enforcement Challenges: Different legal systems can make enforcement demanding. You must be aware of local methods to ensure your NDA is enforceable.
• Translation and Interpretation: Accurate translations are essential to remove ambiguity. You must pay attention to nuanced terms that could impact the agreement. This is especially true when working across languages.

Stay aligned with data protection & privacy laws

Data protection laws also vary across regions, such as GDPR is a key European law. When drafting an NDA, one should account for such laws in their applicable jurisdictions, while handling personal data with employees or contractors.

These laws set clear guidelines, like obtaining consent for data collection, ensuring secure storage, and restricting personal data use. You protect individual privacy and your company’s interests by aligning your NDA with these requirements.

As tech and privacy lawyer Syeda Salma Fathima said on LinkedIn:

Source : Syeda Salma Fathima via LinkedIn

Always obtain consent & signatures

Before having employees or contractors sign an NDA, getting their informed consent is crucial. This step not only ensures all parties comply with data protection and privacy laws but also sets a solid, transparent foundation for handling sensitive information.

So, avoid shortcuts like pressuring individuals for consent, which can lead to legal troubles. If consent isn't freely given, it could be voided, causing reputational harm, legal penalties, and ethical breaches.

However, securing valid consent isn't always straightforward. You may face a few hurdles:

• Language Barriers: Different languages can complicate understanding of consent terms. This makes it harder to ensure clear communication.
• Cultural Differences: People from different countries might have varying perceptions of privacy and legal agreements. Being sensitive to these cultural nuances is key for you.
• Proper Documentation: You must also keep accurate consent records to meet legal requirements.

“Now is the perfect time for in-house counsel to focus on how best to use electronic signatures at your company.  If you are already using them, that’s even better, but just make sure you are truly up-to-speed on the laws in your jurisdiction and that you have the right systems and procedures in place.”

~Sterling Miller CEO and Senior Counsel for Hilgers Graben PLLC
‍Ten Things: Electronic Signatures (What In-House Counsel Need To Know)

Also Read: Five Things to Look for in an NDA

Creating and signing an NDA - Use SpotDraft product plug-in and screenshots

Collaboration with other parties and individuals is great decision for business expansion, but it also brings challenges. This is especially true when managing NDAs. Navigating international laws, regulations, personal interests, and cultural differences can complicate any business transaction.

With SpotDraft, however, you can simplify the NDA drafting, signing, and management process.  Quickly customize your NDA to fit your sensitive data-sharing needs and get it signed by an autorized person with just a few clicks. Once it's signed, you're fully covered through SpotDraft.

With ready-made templates and easy processes, it’s perfect for anyone with limited time and tech skills. Get started in minutes and launch your first NDA with SpotDraft. Are you ready to boost productivity? Click here to try it out!

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