HOW TO DRAFT A NON-DISCLOSURE AGREEMENT?

A non-disclosure agreement, also known as a secrecy agreement or a confidentiality agreement is a legally binding agreement that establishes a relationship between two parties just like any other contract. The main motive of this agreement is to protect any vital information about the company from being stolen by other companies in the market. It is mainly drafted when the company is formed so that the new employees are aware of this agreement and are prohibited from sharing any information or ideas outside the company. It is also commonly used when the company enters into any business transaction with another company in order to protect sensitive information. This is known as a mutual non-disclosure agreement.

HOW TO DRAFT A NON-DISCLOSURE AGREEMENT?

HOW TO DRAFT A NON-DISCLOSURE AGREEMENT?

A non-disclosure agreement, also known as a secrecy agreement or a confidentiality agreement is a legally binding agreement that establishes a relationship between two parties just like any other contract. The main motive of this agreement is to protect any vital information about the company from being stolen by other companies in the market. It is mainly drafted when the company is formed so that the new employees are aware of this agreement and are prohibited from sharing any information or ideas outside the company. It is also commonly used when the company enters into any business transaction with another company in order to protect sensitive information. This is known as a mutual non-disclosure agreement. However, there are times when the other party i.e. the employee, has to enter into these contracts even if they do not agree to it. These are known as non-mutual disclosure agreements. The company has the right to file a suit in the court for monetary damages if there is any breach of contract. Legal penalties are to be faced for any violation. Therefore, both parties should read and scrutinize the agreement carefully before signing it. In order to provide clarity regarding the clauses in the agreement, it has to be legitimate and well-drafted. Certain important clauses to be included in these non-disclosure agreements is mentioned below:

  • DEFINITION OF CONFIDENTIAL INFORMATION: It is the most important clause of the entire agreement. This clause clearly specifies the information that is confidential and private. A proper explanation is mandatory regarding the documents, emails, or conversations which are included in the non-disclosure of any information. Any ambiguity in this clause can put the company at loss in the court if any suit is filed. In other words, the information in this clause should be crystal clear for the benefit of both parties.

  • THE PARTIES INVOLVED: Apart from the definition of confidential information, it is critical as to who has the access to this information. The clause must clearly mention all the recipients of the confidential information and most importantly it must be signed by them. There are situations in which the recipients might have to cross-check such agreements or clauses with their attorneys, in such cases, the names of the attorneys should be mentioned too. Basically, any third party who has the access to the information must be included in the non-disclosure agreement.

  • TERM AND TENURE: All companies should state the term for which these agreements are valid. It is of paramount importance as to when the confidentiality of the information ends. The tenure may vary from company to company based on their terms and conditions. Some may be valid for 10 years, whereas, some may end within 10 months. Therefore, the time limit mentioned should be practical and fair to protect the business.

  • LEGAL OBLIGATIONS: There are situations in which the parties may be compelled to disclose confidential information during the validity of the agreement due to certain legal obligations. These orders might come from any governmental agency or administration. In such cases, the parties are bound to disclose the information though they must inform the other party first. Such clauses regarding violation of the agreement due to legal obligations must be mentioned in the contract.

  • DISPUTE RESOLUTION: It is extremely difficult to avoid any dispute between the two parties. Even the most diligent companies face disputes which need to be solved with efficiency. Such disputes may often lead to further arguments regarding the jurisdiction for taking any legal action. Thus, the jurisdictions should be decided and mentioned beforehand in the agreement to avoid any further disputes.

  • REMEDIES FOR DISPUTES: Once the jurisdiction for resolving disputes has been settled, it becomes mandatory to decide upon the remedies that can be availed by the parties involved. This clause should include the consequences for any breach along with remedies for resolving them peacefully. This clause has to be mutually agreed upon as the remedies are used by both the parties at some point in time. Therefore, it also becomes extremely important to have consent before both parties sign the non-disclosure agreement.

  • LEGAL FEES: In any business relationship it is extremely important that all the clauses are unbiased and do not put a burden on one party completely. Thus the burden to pay the legal fees for any suit filed must be impartial and the respective parties should be liable to pay for filing the suits. If such clauses are not well defined it can lead to huge disputes on trivial matters and can often provide incentives to parties to file a suit without worrying about the court fees.

To know more about, What is NDA and how it is drafted see the video below-

 

 

At the end of the day, non-disclosure agreements should be drafted very carefully to protect confidential information and trade secrets from being leaked to any third party which may cause harm to the reputation or goodwill of the company. Thus, Non-Disclosure Agreements should always be personalized as per the requirements and all the potential loopholes must be covered for a successful and smooth relationship between the parties.

 

By-

Ridhika Kapoor