All about NDA

The loss of valuable information is a nuisance and sometimes a death sentence for a business. Details of contracts or transaction amounts are not information that should be shared with competitors. To prevent a partner or employee from disclosing information, an NDA is concluded. We will look at what this document is in more detail in our article.

WHAT IS AN NDA AND WHAT IS IT FOR?

NDA (Non-Disclosure Agreement) is an agreement on non-disclosure of confidential information, which protects the company from transferring secret data to third parties and once again guarantees the honesty of the parties to each other. 

You can conclude an NDA with an employee, investor, counterparty or partner before starting to work together or at the time of the transaction. It is recommended to refer to such agreements when merging or acquiring companies, purchasing assets or signing investment contracts. An NDA will act as a guarantee of security when interacting with a third party who is entrusted to conduct the affairs of the enterprise, for example, with a private accountant, lawyer, or auditor.

The initiator of such an agreement is the company, which discloses information about internal processes to the other party.

A non-disclosure agreement is signed in areas of activity related to science, technology and development, media content and promotion (advertising and marketing agencies), real estate and construction.

WHAT IS CONSIDERED CONFIDENTIAL INFORMATION?

Confidential information can be absolutely anything. It all depends on the specifics of the company’s activities and the wishes of its owner. Often, secret data refers to customer contacts, details of transactions with them, composition of products, employee salaries, as well as:

• business models, strategic and marketing plans of the company;
• financial agreements (transaction amounts, cost of services or discount amounts);
• information about the cost of goods and pricing established by the company;
• details of unique developments/technologies and the results of their application;
• creative ideas (design solutions, advertising slogans, texts, photos, video files, etc.);
• classified materials with restricted access.

WHAT FUNCTIONS DOES NDA PERFORM?

The main function of a non-disclosure agreement is to protect the company’s activities from unforeseen situations:

1. An NDA protects financial information. A non-disclosure agreement ensures the safety of data, the leakage of which could damage the business or lead to reputational or financial risks. When signing an agreement, the company’s partner will not be able to transmit, intentionally or accidentally, important information (transaction amounts, supply volumes, discounts, etc.) to the company’s competitors or other clients.

2. NDA preserves intellectual activity. With a non-disclosure agreement, the company does not have to fear that valuable developments or ideas that are not protected by a patent will go to third parties. Employees handling sensitive information will not be able to pass it on to a third party without legal consequences.

3. NDA does not allow leakage of negative information. What is meant? For example, the company has legal or accounting deficiencies or tax errors. Specialists (auditors, lawyers) who work with such information that is vulnerable to the enterprise sign an NDA. Otherwise, there is a risk that the data will be lost to the external environment and the business will suffer losses.

WHAT TYPES OF NDA ARE THERE?

NDA is divided into several types depending on the number of participants in the transaction:

1. A unilateral agreement is concluded with a new employee, freelancer, with whom interaction is taking place for the first time. That is, based on the name, such an agreement is signed by only one party. The person who signed the NDA guarantees the safety of information to which access will be obtained in the course of work.

2. A bilateral agreement implies that both parties undertake not to disseminate confidential information outside. An agreement of this kind can be found when negotiations are underway on a merger or when it is planned to organize joint projects, including those of a marketing nature. A bilateral agreement is used when providing services, including contracting, purchase and sale, and so on.

3. The multilateral agreement is signed when companies exchange confidential information with each other. Confidential information may include design documentation or secret developments. Joint marketing research or selection of contractors for a large-scale event is also a reason to conclude a multilateral agreement. Otherwise, there is a risk of data being distributed ahead of time.

WHAT DOES THE NDA SAY?

The NDA must indicate what is included in the list of requested information and what is not. Persons signing a non-disclosure agreement must clearly understand what information they can share and what information they should keep silent about. Otherwise, misunderstandings may arise between employees, partners and the company in the future.

In addition, the non-disclosure agreement should include information about the validity period of the document, information about the responsibilities of the parties, as well as the conditions and procedure for exchanging access to information and channels for its transmission.

A TYPICAL NDA CONTAINS THE FOLLOWING POINTS:

1. General information in the “header” of the document. This includes the date, the name of the company that transmits the information, and the company that receives it. The details of the persons who act on behalf of these enterprises are also indicated here. The place where the contract is concluded is also indicated.

2. Subject of the agreement. This paragraph already reveals the main essence of the agreement. It describes in detail what both parties understand by the concept of “confidential information” (cost of services, transaction amount, amount of discount or salary, etc.).

3. Transfer of confidential information. This section of the document reflects the purpose for which the information is being transmitted. The method of its transmission is also recorded: oral, written, or providing access to the company’s digital resources.

4. Storage and disclosure of confidential information. The obligation of the receiving party not to disclose the information received is once again stated. Plus, actions are prescribed if confidential data is required to be disclosed by investigative authorities.

5. Responsibility of the parties. Consequences for intentional or accidental violation of the NDA can be found here. The section indicates the amount of the fine or other disciplinary consequences (for example, reprimand, dismissal), compensation for damages depending on the damage caused.

6. Terms of the contract. A time period is fixed within which confidential information cannot be disclosed.

7. Details of the parties. The final section, where the basic data is once again indicated. If the agreement is concluded with a legal entity, the following information is specified: company name, tax identification number, location address.

WHAT TO DO IN CASE OF VIOLATION OF NDA?

A partner company/employee or other person who, contrary to signed agreements, violates the NDA risks paying a fine. Disputes under a confidentiality agreement are resolved in court if it is impossible to reach an agreement amicably or the amount of damage is too great. The injured company can request compensation for the losses caused and claim compensation for the expenses incurred. The amount of the fine or penalty may be initially specified in the contract.

Before going to court, you need to collect evidence that the agreement was actually violated. Correspondence, video files, and witness testimony can be used as arguments.

Violation of NDA by an employee entails disciplinary or material, civil, and sometimes criminal liability, depending on the amount of damage caused:

1. Disciplinary liability: The affected company has the right to fire an employee who accidentally or intentionally discloses classified information. Legislation in the form of the Labor Code is on the side of the employer.

2. Financial or civil liability: dismissal is an easy path for an employee who made confidential information public. If the amount of damage is too great, you will also have to pay a fine along with the loss of your position, provided that guilt is proven.

3. Criminal liability arises if an employee used company data for his own commercial gain.

Violation of the NDA by a partner company, counterparty or shareholder may result in administrative or civil liability and exclusion from the corporation.

HOW LONG IS AN NDA VALID?

The contract ends when the parties agree to terminate it. Other deadlines may be specified initially. In case of early termination of the agreement, additional documents are signed. If the NDA is terminated by one of the parties, the other party must be notified of the decision in writing.

SUMMARY

NDA acts as a tool for protecting confidential information in a company and guarantees the transparency of business relations between all participants in the process. Whether they are partners, investors or employees, a non-disclosure agreement promotes reliable and trusting interactions, eliminating possible problems in the future. Each party understands what information is closed to third parties and the possible consequences of leakage of this data.