Commercial

How Do NDAs Protect Confidential Information?

confidential

In any competitive industry, the information you have can spell the difference between success and failure. Between staying ahead of competitors and falling behind.

It isn’t just about having knowledge of the trade or keeping up to date with trends, it is also about what you know about your own business, what your competitors know about you, and – perhaps most crucial of all – the things they don’t know.

This is why it’s important to get a handle on what information gets out the company door and into the public. And this largely means ensuring that you have control over what the people working for and with you are saying and sharing about your business.

Why NDAs?

That’s where Non-Disclosure Agreements or NDAs come to play. NDAs are contracts where one party obligates another to refrain from sharing sensitive information about the company. Such information can range from the big-picture such as sensitive product or service information, business strategies, company performance, meeting outcomes, to day-to-day things like interpersonal relationship dynamics or personal information about colleagues and senior team members.

Most times, NDAs are agreed upon with third parties, whether it’s contract hires, partner companies, or consultants. But NDAs may also be created between the company and employees, to govern over what can be disclosed about the business even after the employment relationship has ended. NDAs ensure that people whom the company extends trust towards would not share or make up disparaging information about it: either by divulging plans and ideas to competitors, or by taking certain facts out of context to paint the company and its leaders in a bad light.

Beyond these, NDAs also ensure that company information needed by these parties are is only for the agreed upon purposes. Some NDAs require documents to be destroyed after use, while others require parties to ask permission before sending such documents to other people.

If these parties choose to violate the terms of the NDA, they stand to be held liable to pay the company damages for breach of contract.

How NDAs work

But do NDAs really protect confidential information? After all, once the information supposedly protected has already leaked, it’s like getting toothpaste back into the tube.

Tak Matsuda from Commercial Law firm Crest Legal explains that NDAs have there limitations:

You should note that a confidentiality agreement cannot provide absolute protection for your confidential information. If the confidential information is used or disclosed in breach of the agreement, it may be too late or expensive, for you to seek a remedy.

Tak Matsuda

If the protected information has already reached other parties, then it’s a matter of calculating and proving how much damage the company will sustain because of the leak. This means providing compelling evidence for two things: that the company suffered losses because of the information, and that the information was leaked because of a confidentiality breach.

Aileene Koh, writes on everydna.com that an NDA could be invalidated if the definition of NDA is too broad

Although it may be tempting to define all information that you disclose to a Receiving Party as confidential, avoid using a catch-all clause. Instead, limit confidentiality to information that is truly necessary to be kept a secret.

Aileene Koh

Alternatively, the company can also file an injunction against the party who breached the NDA. This would allow the court to prohibit the party from further spreading the said information to other parties.

Conclusion

The addage advising leaders to “work for peace and prepare for war” is true, especially in dealing with information. It is important to build an environment of trust in dealing with employees, consultants, and partner companies. But this environment can only exist if there is an expectation of accountability when crucial information and documents reach the wrong hands.

NDAs essentially make it clear when the use of information is right and when it is disparaging to the company. And with the right legal team, they can minimize, control, and even compensate for the damage done to the Company if ever such information is misused.

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