Non-disclosure agreements – abuse or legitimate use?

Non-disclosure agreements (NDAs) are legitimate, lawful tools for businesses who want to protect their trade secrets and other confidential information (for example, important information and knowledge about the company, its inventions, designs and products) from disclosure to third parties.

An NDA creates a confidential relationship between two or more parties. They are often signed between a company seeking funding and a potential investor or by an employer and an employee, where the employee is likely to have access to sensitive information about the company – in each case, the aim is to protect the businesses’ confidential information.

Unfortunately, the use and abuse of NDAs, sometimes referred to as confidentiality agreements, has recently been the topic of news headlines. They are increasingly being used to prevent staff and ex-employees from speaking about abuse, mistreatment and misconduct by others within a company.  The latest allegations have been made against UK universities by staff, where it has been reported that NDAs are being used by universities to prevent staff, who have made complaints of bullying and harassment, from speaking out. This has been widely condemned as morally wrong and deemed a misuse of NDAs.

The legal profession has also become embroiled in NDA scandals, with a Solicitor from a major law firm facing possible disciplinary action over the drafting of an NDA involving film producer Harvey Weinstein. The Solicitors Regulatory Authority (SRA) is reportedly also investigating 12 other NDA-related investigations since March 2018 (eight of which, involve sexual harassment).

However, NDAs are not new. They have been traditionally used by businesses to prevent confidential information (including trade secrets) being shared or misused, whether by employees past and present or by service providers and business collaborators.  They are contractual arrangements placing an obligation on an individual not to disclose certain information to others and to use it only for specific purposes.  If that obligation is breached and confidential information is passed on or misused, the business can claim damages and / or obtain an injunction (usually dependant on the terms of the NDA).

NDAs are therefore, a useful tool for businesses.

How can we use NDAs effectively?
Despite the recent publicity, NDAs can be used to legitimately protect commercial interests and confidentiality in many circumstances.  In fact, if a business does not have an NDA in place in appropriate situations, it may be leaving itself exposed to the risk of the loss or misuse of confidential information.  NDAs are appropriate where, for example, if a member of staff decides to leave, but they have important information and knowledge about the company, its inventions, designs and products, or where you wish to show potential investors your product without fear of the information being shared.  An effective NDA can prevent the individual from giving your confidential information to their new employee and any other third party.

When negotiating an NDA, you need to consider what you are seeking to protect, whether the proposed restrictions are reasonable, how long the NDA should last and what remedies will be available in the event of a breach.  With so many issues to consider, it is important to take specialist legal advice from commercial Solicitors experienced in drafting NDAs to ensure the interests of your business are adequately protected.

How can we help?
NDAs can play a valuable role in your business.  We advise all types of business organisations on NDAs and matters of confidentiality and trade secrets, including the common law duty of confidence and The Trade Secrets (Enforcement, etc.) Regulations 2018. For strategic advice and representation on these issues and how you can best protect your business and reputation, please contact our commercial team.

Mark Chapman
Partner, Commercial
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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