- March 27, 2024
- 8 min read
- Sirion
Introduction
Everyone within your enterprise works hard to build and grow a business you can be proud of. As your company grows, you hire more employees, partner with more vendors, and develop more technology, opening your company up to the risk of sensitive information leaking.
Whether it be intellectual property, customer data, or otherwise, there are certain aspects of your enterprise that you need to keep safe. That’s where non-disclosure agreements (NDAs) come in handy.
By using non-disclosure agreements, you can legally protect important company information and reduce contract risk across your organization.
In this article, we’ll strip away the legal jargon and explain why NDAs, in all of their various forms, are one of the most important legal documents to understand and properly implement.
What is a Non-Disclosure Agreement?
A non-disclosure agreement is a business contract that protects data, ideas, and other sensitive information shared between parties. One party discloses the private data, while another receives it. You can also think of it as a confidentiality agreement. The document serves as a legally binding blueprint for shared information, who is privy to it, and the consequences of breaching the agreement.What Does an NDA Protect?
Non-disclosure agreements can safeguard almost anything within your enterprise. There are a few limitations, but we’ll cover them later.
An NDA can protect:
- Customer Data – This can cover who your customers are, their contact information, your direct communication with them, and their business preferences.
- Intellectual Property – Includes copyrights, trademarks, proprietary technology, and patents.
- Financial Information – This can cover any financial information that is not required to be publicly available.
- Operations Information – This can cover employee or supplier data, payroll details, and costs related to everyday operations.
- Marketing Data – This can cover pricing details, advertising strategies, and billing policies.
When do I Need an NDA?
Non-disclosure agreements are handy when entering any new business arrangement where one or more parties exchange private information. By setting up privacy expectations early on in the relationship, you can ensure that you’re diligently protecting sensitive data.
You may want to use an NDA when you are:
- Selling or Onboarding a Product—If you exchange technical, financial, or other private data, you’ll want to ensure that it remains between the agreed-upon parties and is not shared.
- Hiring Employees — New employees will gain access to a lot of proprietary and sensitive data. An NDA protects that information during and after employment.
- Gaining Clients — You’ll likely collect client data during an onboarding. An NDA ensures your enterprise knows exactly what data must be kept private so you can reduce the risk of liability.
- Starting a Partnership — You exchange a myriad of information when negotiating a new partnership. Use an NDA to ensure those discussions stay private.
- Entering M&A — Due diligence during a merger or acquisition gives the interested party—and relevant brokers—access to confidential data. You can use an NDA to make sure that information stays only between appropriate parties.
What to Include in a Non-Disclosure Agreement?
A solid non-disclosure agreement will include these key elements:
1. Relevant Parties
First and foremost, who is legally bound to this agreement? This section of the NDA defines who the disclosing and receiving parties are and refers to them using names and addresses. It will also include specific legal entities, such as lawyers or financial professionals.
It’s vital to identify all parties within the NDA correctly. Not doing so can lead to an accidental breach of contract or open you up to risk.
2. Definition of Confidential Data
This is often the most challenging part of drafting an NDA. You’ll have to clearly list what information is considered confidential and covered by the NDA.
The precise contract language you use—and how you define various types of information—makes a big difference in ensuring the agreement holds up in court.
3. Proper Uses of Information
Once the non-disclosure agreement defines the protected information, it must also have language that covers the appropriate ways external parties can use or share data.
For example, you may use a tech solution that requires inputting sensitive client data to create improved implementation plans. An NDA can ensure that the product does not use that client data for its own marketing purposes.
4. Specific Time Limits
Non-disclosure agreements rarely, if ever, last a lifetime. Most NDAs have time limits ranging from one to five years. If protected information holds its value for longer, you may be able to extend the timeline.
But remember: even if you consider the agreement indefinitely enforceable, you’ll want to include specific data when the NDA no longer protects the data.
5. Exclusions of Liability
This area of the agreement covers information that will not lead to legal liability if it is shared. Often, this refers to publicly available data previously shared before the contract was signed or already known by the receiving party.
6. Return of Information
Some non-disclosure agreements require parties to prove they have returned or destroyed any shared sensitive information once your business concludes.
For example, if you shared financial documents during a potential M&A, you can enforce an NDA and require the receiving parties to securely shred the files upon the contract’s term end.
7. Remedies of Breach
Every NDA must lay out the consequences of a violation of the contract. Doing so ensures all parties know the specific penalties as early as contract negotiations—leaving little room to argue the terms in court.
Contract obligations for NDA violations can vary but—depending on the defined terms and severity of the violation—can include:
- Legal, financial, or reputational consequences
- Employment termination
- Criminal charges
You’ll want to ensure you have an efficient way to track these obligations in case of a breach.
What are the Limits of an NDA?
As mentioned, non-disclosure agreements are not a catch-all for legally binding privacy. There are a few cases in which you can not enforce an NDA.
These include when the information:
- Relates to Public Interest — You can’t prevent information from being disclosed if it connects to illegal activity, public health and safety, or government transparency.
- Is Publicly Available – If a party can find the data via public record, you can’t enforce its privacy under an NDA.
- Breaks Jurisdiction Laws – NDAs are typically enforceable under specific jurisdictions and laws. If the receiving party resides in another jurisdiction with different laws, you may have a hard time enforcing the agreement.
- Has Limited Protections or Time Frames – You can’t protect information if you don’t clearly define specific data in the NDA (the language is too broad) or the time limit has expired.
The Downside of NDAs
While non-disclosure agreements are great for protecting your enterprise’s sensitive data, they aren’t without their cons.
Implementing an NDA can come with some downsides, including:
- Limiting transparency, creativity, or growth opportunities
- Increasing legal risk
- Creating mistrust
If you’re considering using NDAs for your business relationships, weigh the pros and cons first.
Also Read: What happens if you break an NDA?
How to Successfully Create a Non-Disclosure Agreement
CLM software allows you to:
- Draft documents using approved templates with approved language instantly
- Quickly edit language when necessary and provide a clear audit trail of changes
- Smoothly manage signature hierarchy and contract execution
- Store all NDAs in a secure, cloud-based contract repository
- Easily track relevant dates, obligations, and contract terms
Using Contract AI to Improve NDA Management
Contract lifecycle management software is just the beginning of improving NDA authoring and management. Artificial intelligence lets you streamline the process with fewer mistakes and greater efficiency.
You can use contract AI to:
- Speed Up NDA Drafting — Get suggested improvements that match your company’s standards.
- Improve Contract Negotiation and Approval Processes — Pinpoint absent clauses and deviations from desired positions.
- Refine Risk Management — Use predictive insights to progressively improve the outcome of every deal you make.
- Reduce Manual Efforts — Digitize and analyze contracts, extracting valuable insights for automating tasks.
Automate NDAs to Protect Your Business
Non-disclosure agreements are vital for protecting your business. Legal teams need to be able to quickly produce new documents so deals and partnerships can move forward.
Sirion’s contract AI platform simplifies and smartens the process of drafting and managing NDAs, ensuring that your enterprise remains protected as you scale.
See how you can use our generative AI technology to fundamentally transform your contracting processes and automate your NDAs.
Additional Resources
AI Contract Negotiation: Benefits & Best Practices
14 Contract Negotiation Strategies and Techniques
6 Types of Risks In Contract Management And How To Mitigate
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