What is an NDA?

In certain situations involving personal and professional relationships, people need to protect confidential information. Whether it’s a business acquisition or employment contract, having a written agreement about the disclosure of such information is often vital. 

While parties can agree informally not to share sensitive details, they may struggle to enforce the agreement. Having a formal document detailing the terms is a common way to manage these situations, particularly in business contexts. 

This article explains the types of non-disclosure agreements (NDAs), their legal standing in England and Wales, when to use them, and the consequences of breaking one. For advice, contact Helix Law. 

What is the Purpose of an NDA?

An NDA is a binding legal agreement that prevents the sharing of sensitive information with third parties. The contract creates a confidential relationship between the parties signing and imposes specific consequences for breaches. 

The document’s purpose is to deter parties from breaching its terms while providing a legal remedy if they go against it and share the information covered by the agreement.

Types of NDAs

There are three different types of agreements:

Unilateral 

A unilateral agreement arises in situations where one party discloses confidential information to another and requires that person not to share it.

This type of agreement is common in employer-employee relationships where staff may have access to sensitive company details. It may also be used when businesses pitch ideas to investors and want to prevent those ideas from being copied or stolen. 

Bilateral

Bilateral NDAs are used when both parties are exchanging sensitive information and each needs to protect it. They’re often used in mergers, joint ventures, and other business partnerships. This type of agreement allows individuals and businesses to communicate openly while maintaining confidentiality. 

Multilateral

A multilateral agreement applies when there are three or more parties, at least one of which is disclosing confidential information. It enables multiple parties to create a unified document outlining their obligations, rather than drafting several bilateral NDAs. They may be used in business deals involving at least three companies. 

Are NDAs legal in England?

NDAs are considered contracts in England and are legal, provided they comply with the necessary formalities. For the arrangement to be enforceable, there must be:

• An offer by one party;
• Acceptance of this offer by another party; 
• Consideration (and exchange of something of value); and
• An intention to create legal relations. 

Technically, an NDA doesn’t have to be in writing for it to form a contract. However, oral agreements aren’t advisable as they’re difficult to enforce. The contract is illegal if the parties use it to cover up unlawful conduct.

When to use an NDA

Individuals and businesses can use NDAs in many situations, including:

• Employee onboarding: Employers may want to protect trade secrets and sensitive company information they’ll be sharing with new employees. 
• Contractor agreements: Businesses that use external consultants or freelance staff may want to prevent these individuals from misusing their information. 
• Business negotiations: Before parties finalise business deals, such as mergers and acquisitions, they need to prevent financial information from being shared publicly. 
• Product development: Ensuring novel concepts aren’t disclosed prematurely and that intellectual property is protected is often fundamental to product development processes. 
• Settlement agreements: If parties resolve a dispute, they may want the terms of their settlement to remain private. For example, it could prevent a claimant and defendant in litigation from discussing each other’s business after resolving proceedings. 

NDA Limitations

Exceptions

Some exceptions apply to NDAs, meaning parties can share sensitive information despite the existence of an agreement. This includes when:

• Sharing information is in the interests of public safety, e.g., reporting an employer for a health and safety breach;
• A party reports a crime to the police; 
• Parties are required to disclose details to tax authorities; 
• A law or regulation requires the parties to share certain information; and
• The information is already in the public domain and, therefore, not confidential. 

An agreement should clearly state that it doesn’t prevent a party from sharing details in the above scenarios. 

Enforcement

Parties can also face difficulties with enforcement. Not only is the legal process often expensive and time-consuming, but the enforcer must prove that: i) the information shared was confidential; ii) the NDA was breached; and iii) they suffered from loss or damage as a result.

These can be challenging hurdles to overcome, particularly if the contract is overly broad in scope or length. 

Ethical Considerations

These agreements also give rise to various ethical concerns. Historically, NDAs have been used to prevent individuals from speaking up about illegal conduct. While modern drafting has improved this, parties in a weaker position may still feel silenced by the agreement. 

Additionally, presenting an individual with an NDA at the start of a business transaction can indicate an immediate lack of trust, potentially damaging the future relationship. 

What happens if someone breaches an NDA?

The document itself should specify the consequences of breaching the NDA. Common penalties include: 

• Damages: The defaulting party must pay a sum equivalent to the loss suffered by the other party. The enforcer must demonstrate that the damages stem directly from the breach. 
• Injunctions: The court can make an injunction to prevent a party from disclosing further confidential information. 
• Legal costs: The breaching party may be ordered to pay the other side’s fees if the enforcement action is successful. 

• Harm to business relationships: Breaking an agreement can cause long-lasting damage to professional relationships. 
• Reputational damage: Breaches can damage an individual or company’s reputation, making it more challenging for them to secure future deals. 

Frequently Asked Questions

Is signing an NDA a big deal?

An NDA is a legally binding contract that should be taken seriously. Parties should carefully review the terms and obtain independent legal advice before signing it. Signatories must understand what information the agreement covers, for how long, and the consequences of breaching it. 

Can you go to jail for breaking an NDA in England?

Breaching an NDA is typically a civil, not a criminal, matter. However, if the disclosure relates to criminal activity, like stealing and sharing government information or trade secrets, there can be criminal consequences. If found guilty, a defaulting party could face imprisonment in addition to civil penalties. 

What are the red flags for NDA?

An NDA is less likely to be legal and enforceable if it’s overly vague in scope and length. Other red flags include if it prevents parties from reporting unlawful conduct or requires one person to bear all the risk. Parties should seek legal advice on any terms they are unsure of. 

Final Thoughts

Non-disclosure agreements are a powerful tool for safeguarding sensitive information across various professional and commercial contexts. Whether you’re onboarding a new employee, negotiating a business deal, or developing a new product, a carefully drafted NDA helps establish trust from the outset. If you’re considering drafting or signing an NDA, you must understand exactly what you’re agreeing to. A well-drafted agreement should protect your interests without overreaching or causing unnecessary risk. 

At Helix Law, we regularly advise businesses and individuals on NDAs and other contractual matters. Whether you require a bespoke agreement or guidance on your legal obligations, our team is here to help. Contact us today to discuss your needs and obtain specialised advice.