Disclosing the Facts About Non-Disclosure Agreements: A Widely Used and Highly Useful Legal Tool
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The non-disclosure agreement (NDA) is quite a high-profile contract type these days: You hear about them often in the news, in contexts ranging from US presidential debates to celebrity marriage breakups to corporate scandals.
Despite their notoriety in situations like those, non-disclosure agreements are a frequently employed and very useful tool for thousands of corporations, large and small, around the world, especially for business-to-business commercial conversations.
This article will explore the myths and the realities of NDAs and provide some suggestions of how to craft them to ensure they do serve as a useful tool. It refers specifically to Corpay’s use of NDAs, but most of it is still highly applicable to other business situations.
What is an NDA/MNDA? Why do we use them?
NDA stands for non-disclosure agreement. The “M” that sometimes appears in front stands for mutual, as sometimes NDAs just protect one party’s information.
An NDA, often referred to as a confidentiality agreement, is a legal contract that outlines information that the parties to the agreement wish to share with one another while restricting its access to third-parties.
NDAs are often used in the business context to allow the parties to the agreement to discuss business opportunities, knowing that their sensitive information will not be made available to the general public or to competitors. At Corpay, we use NDAs for two main reasons: 1) they help built trust as an NDA re-assures clients they can share sensitive details about their business in confidence, 2) they enable us to provide a deeper description of our service to client in confidence, as some details of our service offering, price structure, etc.. are still confidential despite us being part of a public company now.
In our experience, there are a few business myths circulating about NDAs/MNDAs.
1. All NDAs are all the same.
Some put unreasonable obligations on one party or include other restrictive covenants. Our version is very fair version. Our template gives both parties exactly the same rights and responsibilities as one another.
2. NDAs are unnecessary.
While we (and many of our clients) are subject to many privacy laws, these often require we confirm confidentiality by contract. Information protection is crucial for all.
3. NDAs are not enforceable.
Not true. A well drafted NDA is enforceable. But it is true that enforceability might be challenged where, for instance:
i. the scope of the confidential information is too broad, unreasonable or onerous, ii. the information was provided by a third party, or is already know by the recipient, or is publicly available, etc.
4. NDAs have to be customized for each counterparty.
That is actually not necessary. For instance, the Corpay NDA template can generally be used as is: it has been designed to be business friendly, short, and reasonable.
5. NDAs protect all information
They do not. The information is protected depending on how the agreement defines “confidential information” and/or if it is protected by other laws. The information to be protected needs to be specifically defined to create clarity and protection limits may depend on governing laws.
At Corpay we have standard form MNDAs for use with our customers and prospects. The MNDAs aim to deliver the required assurance between the parties in a straightforward, concise contract. Our sales team can forward a version for review.