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A confidentiality agreement is an essential legal document for most businesses. During the startup of your business, you may be speaking to a large number of people about your business ideas, plans and what makes your business unique. It is important to understand your rights and responsibilities under a confidentiality agreement and how or when you may be able to terminate or get out of the agreement. Confidentiality agreements are very familiar and common agreements signed by many people in business. However, the obligations under these agreements can be very long-lasting. Therefore, it is important to understand what it is you are signing. This article will explain what a confidentiality agreement is and how you can get out of one.
What is a Confidentiality Agreement?
Confidentiality agreements are also referred to as non-disclosure agreements (NDAs). They are an agreement between two parties, entered into in circumstances where either or both will disclose confidential information during the course of their relationship.
A well-drafted non-disclosure agreement can specify:
- what information is considered confidential
- that this information cannot be disclosed; and
- what the consequences are for breaching the agreement.
NDAs are commonly drafted to protect the following information:
- business plans, methods and ideas;
- intellectual property;
- trade secrets;
- financial information;
- marketing and capital raising plans; and
- customer and supplier lists.
Mutual vs Unilateral
You can draft NDAs as mutual agreements, which means that both parties’ confidential information will be protected if disclosed. However, an NDA may also be one-sided. Therefore, it is important to check that the NDA you are signing covers your business too if you will be disclosing confidential information.
A unilateral NDA is one-sided. This means that it only protects one party to the agreement from the disclosure of their confidential information. Unilateral NDAs are common where only one party to the agreement is disclosing confidential information.Continue reading this article below the form
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Common Clauses of an NDA
NDAs will include a range of clauses detailing:
- the obligations and rights of each party;
- what information is defined as confidential; and
- what the consequences of a party breaching their obligations under the agreement are.
Read below for some common and important clauses you will find in an NDA.
Obligations of the Receiver of Information
This clause will detail the receiving party’s obligations regarding:
- keeping the information confidential;
- for how long they need to keep this information confidential; and
- under what circumstances they can disclose it.
Confidential Information Definition
An NDA should contain a definition of what information will be considered confidential. Additionally, the disclosing party will want to ensure this clause is very broad to capture all the information that a party may disclose to the receiver. Broad definition clauses may limit the business‘ ability to use the information disclosed in a way that could benefit the discloser’s business plans. For this reason, it is important to ensure the definition of confidential information is accurate for the purposes of your business interactions.
Purpose of Confidentiality
The other party will likely have set out a specific purpose for disclosing the confidential information to the receiver. Therefore, this clause should not be too broad or narrow as it may prevent you from being able to use the confidential information for the businesses needs.
Term of the Agreement
This clause will outline the term or duration of the agreement. It will have a date that specifies the contract’s expiry date where the contract ends, and both parties no longer have a contractual relationship. Although the term is over, your responsibilities under the contract in relation to confidentiality may still be in force. So, it is important to understand the entire agreement and its drafting.
Return of Information
At the end of the contractual relationship, NDAs may include a clause stating that the receiving party needs to return or destroy the confidential information. In addition, the NDA should contain a clause stipulating exactly how and when this should occur.
Getting Out of a Confidentiality Agreement
Term or Duration
Most NDAs will have an end date where the contract expires, and both parties are no longer in a contractual relationship. Although the contract will expire at this date, there may be another term in the contract which covers the expectation for how long confidentiality obligations are to apply for, even after the NDA has come to an end. Obligations to keep the information confidential usually extend far past the date the contract ends. There could be a particular time frame, for example for five years after termination or expiry, and in some cases, it can be a lifelong perpetual obligation.
Like any other contractual relationship, agreements can come to an early end. In the same way, a party that has signed an NDA may decide that they want to terminate the agreement before the agreed end date or expiry date. A termination clause in your NDA should specify how and when a party can terminate the contract early. In some cases, the NDA may not allow for early termination. Even if parties terminate early, there will still be continuing obligations as mentioned above.
The termination clause should specify:
- how you should communicate the intention to terminate to the other party (for example, you need to do so in writing);
- if you require any notice period before termination takes place (for example 30 days notice); and
- what happens after termination (for example, the return or destruction of information).
Return or Destruction of Information
A very important clause in an NDA will be the return of confidential information. This clause will state whether the recipient needs to return or destroy the confidential information (often both) and in what time frame. Furthermore, it will cover whether the party requires it immediately upon termination or expiry, or if there is an extended time period to do so. It is important to understand your obligations to destroy information, data or documents that may be confidential information under the NDA. This is because it can be a costly and time-consuming process. Therefore, you should understand and plan for this before entering into an NDA to avoid a surprise at the expiry of the agreement.
An NDA may allow you to terminate or ‘get out of an NDA early’. Expiry of the contract term is also another way you can get out of an NDA. However, it is important to understand that your obligation to keep that information confidential could continue for many years after the expiry of the contract. If you need assistance with drafting or reviewing an NDA or have any questions about how you can get out of an NDA, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
Frequently Asked Questions
It is an agreement between two parties, entered into in circumstances where either or both will disclose confidential information during the course of their relationship.
One way to get out of a confidentiality agreement is when the contract term expires. Another way is if the contract is terminated (in accordance with the termination clause). However, remember that your obligation to keep that information confidential could continue for many years after the expiry or termination of the contract.
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