The non-disclosure agreement (NDA) has been thrust once again into the spotlight after the government has announced that legislation will be introduced to “bring to an end the murky world of non-disclosure agreements”. The Ministry of Justice has confirmed that as a result of the legal changes, victims of crime who have signed NDAs will no longer be prevented from accessing legal advice and from reporting crime for fear of breaching the terms of an NDA.

The government proposals appear to be aimed at helping employees in an employment context such as victims of sexual harassment at work, however, NDAs are also widely used in a whole host of circumstances including in a commercial context such as in relation to mergers and acquisitions and in the development and sale of products or technology.

Solicitors

Solicitors will be aware that the solicitor’s regulator, the Solicitors Regulation Authority (SRA), issued a warning notice in 2018, which was updated in 2020. The SRA outlined that NDAs are legitimately used to protect commercial interests, reputation and confidentiality but warned solicitors not to use them to prevent disclosures to regulators, law enforcement agencies and making disclosures protected by law, otherwise known as whistleblowing.

What is an NDA?

Put very simply, an NDA is a contractual agreement between parties which is intended to protect confidential information. In an employment context it might be used where an employee is required to sign an NDA to prevent them from sharing sensitive and confidential information such as client lists and trade secrets.

An NDA provides a legally enforceable framework in which to protect certain information from being stolen or disclosed to third parties. If a party breaches an NDA, it can lead to financial penalties such as damages having to be paid by one party to the other, and court proceedings.

Confidentiality is not confined to NDAs - commercial contracts often contain a confidentiality clause.

When might an NDA be used?

Often NDAs are used in M&A deals when one party would like to provide another party with confidential information but would like certainty that the information which is being shared will remain confidential.

An NDA may be used in circumstances where information is being passed from one company to another in relation to a specific product or specific work, and it is essential that the relevant information being shared is protected.

In a dispute resolution context, a party may settle a legal claim on commercial terms without the need for the parties to incur the time and expense of contested court proceedings. In such circumstances, the parties may insist on the terms of any settlement and indeed the settlement itself to remain confidential and that would be reflected in a settlement agreement containing a confidentiality clause. Often a company may do this to protect its commercial interests. It is important to say that in a commercial litigation context, the court wouldn’t ordinarily impose confidentiality terms, that would be a matter for the parties to agree between themselves often with assistance from their legal representatives.

What is contained in an NDA?

A well drafted NDA will usually explain who the parties are, the background about why one party is sharing the confidential information with the other party and outline what the confidential information is. The NDA will set out that the confidential information is to remain confidential. As outlined above, an NDA should not prevent disclosure to the police or a regulator.

NDAs may have received a bad press over the years – when used properly, on the whole, an NDA can be a useful and important legal document to genuinely protect confidential information. However, as we are seeing from steps taken by the government, NDAs cannot and should not be used to preclude victims reporting criminal behaviour.