What is a Non-Disclosure Agreement?

Watch any high-octane law drama on TV nowadays and you’ll likely hear about people breaching NDAs within the first five minutes of an episode. In the real world, rich and powerful business executives and magnates who would normally shrug off accusations of a severe criminal nature, tend to shrink in fear at the thought of a breached contract and the repercussions that could follow. Maybe you’ve recently been asked to sign one yourself, or perhaps you’re just curious as to what all the fuss is about. Either way, let’s jump into the conversation and ask ourselves – What is a Non-Disclosure Agreement? Is it Legally Binding? And How do you Make One?

Non-Disclosure Agreements (NDAs) (sometimes referred to as confidentiality agreements) are legally binding contracts that are sometimes used when confidential information is shared between two or more parties. These NDAs identify certain information that is not to be released or disclosed to third parties.

If the information is leaked to a third party (and if it can be proven that the leak came from one of the signing parties), the innocent party may take legal action against the guilty party and sue them for damages on the basis of a breach of contract.

What is a Non-Disclosure Agreement?
What is a Non-Disclosure Agreement?

What is the Purpose of a Non-Disclosure Agreement?

There are many situations in which two or more parties may want to enter into an NDA with one another. Primarily, the purpose of an NDA is to safeguard important information and ensure that it does not get shared with undisclosed parties. 

If you’re still a bit fuzzy on the details, that’s ok. We can look at a few examples to try to clarify things further. 

Examples of NDAs in the Real World

Deals and Negotiations – Sometimes an enterprise may wish to share its business plan with a potential investor or partner. The prospective investor/partner may need to see such information before they get on board, but once they’ve been apprised of the situation, the enterprise wouldn’t want them taking all that sensitive information straight to their main business rival. 
Potential/Upcoming Works – A person making a movie or a show may need to show the script to potential cast members and producers. Once again, they will want to ensure that the information (the script) does not get leaked out before the movie is released. 
Trade Secrets – This is perhaps the most common use of NDAs in the real world. Let’s say you work for the Coca–Cola Company. Their product is heavily reliant on a kind of secret formula which is used to create the unique taste of their soda. Therefore, the company would most likely get you to sign an NDA before you start working for them to ensure that you do not share this formula with competitors or with the general public. 

As mentioned, there are many other instances in which NDAs may be used to protect sensitive information, but hopefully, these examples have given you a basic understanding of their functionality. 

How Serious is a Non-Disclosure Agreement?

As noted, NDAs are legally binding contracts which can result in various penalties for the party/parties that breach them. That said, NDAs need to be properly formulated to ensure that they meet certain legal requirements and remain valid. 

Most commonly, these penalties will take the form of damage claims, however, in specific scenarios, courts may also order the guilty party to perform in the manner that was agreed to in the contract.

Alternatively, in cases in which the breach has not yet occurred but seems imminent, the court may order an interdiction to prevent the breach before it happens.

What is a Non-Disclosure Agreement?

What are the 5 Key Elements of a Non-Disclosure Agreement?

Each and every NDA will need to be tailored to a specific situation and will thus be somewhat unique. That said, there are a few helpful tips that apply broadly to any scenario and which can help you to draft an effective NDA of your own – 

  • Define your Terms – Vague language can provide wiggle room for a potential leak of confidential information by one of the signing parties. It’s a good idea to accurately define what constitutes ‘confidential information’ within the context of your NDA or to include a kind of catchall clause to cover your bases. 
  • Specific your Time frame – Your NDA should accurately identify the time frame during which the confidential information cannot be shared out. Regardless of how long this period actually is, it’s always a good idea to specify it in the document. 
  • Identify the Parties Involved – Ensure that your NDA clearly identifies the parties involved in the matter as well as their relative roles. In other words, clarify which party is sharing the information, which party is receiving it, etc. 
  • Improper Conduct can Nullify NDAs – Certain actions performed by the parties involved may make an NDA null and void. Most commonly, this involves misrepresentation, duress, and undue influence. 

If, for example, a party is threatened into signing the NDA, that contract will not be legally binding. 

  • Identify Consequences – NDAs should always specify what kind of action will take place if a breach of contract should occur. These consequences may include things like termination of employment, damage claims, and the seeking of interdictions. 

While it’s helpful to keep these points in mind, it’s generally a better idea to hire a trained legal expert to draft an airtight NDA on your behalf, in case you get things wrong. 

But now that we mentioned it, can you legally create an NDA yourself?

Can Anyone Make a Non-Disclosure Agreement?

Technically speaking, you can make an NDA yourself and it could end up being legally acceptable. There are even online templates available for you if you’d like to give it a go. 

However, what you’ll notice on all of these online templates are disclaimers from their creators, completely rejecting liability if the contracts are not upheld. They do this because the law is constantly changing and there is a good chance that a layman will leave loopholes and errors in their own NDAs which could impact their efficacy. 

In other words, while you can make your own NDA, it’s heavily recommended that you hire a lawyer instead and allow them to do it for you so that you aren’t caught with a nullified contract. 

How Much does a Non-Disclosure Agreement Cost?

As mentioned, NDA templates can be found for free online. 

If, on the other hand, you want to go down the safer route and hire a lawyer to draft one for you, the price will end up varying depending on the lawyer you employ. 

What is a Non-Disclosure Agreement?
What is a Non-Disclosure Agreement?

In Conclusion – What is an NDA and What does it Do?

Non-Disclosure Agreements (Confidentiality Agreements) are legally binding contracts generally used to protect, and prevent the spread of, confidential information. 

NDAs are usually signed between two or more parties when they need to share sensitive information with each other while ensuring that the information does not reach third parties. 

If, for example, two enterprises are considering a merger, they will most likely need to share critical data such as their business plans with each other. That said, neither enterprise will want that information to be leaked out to rival businesses or to the general public. As such, they will draft and sign an NDA to safeguard the relevant information. 

NDAs are also commonly used to protect trade secrets. Various corporations may have developed special recipes or technologies which they wish to keep for their exclusive use. These organisations may require employees to sign NDAs before they begin working for them to ensure that those employees do not reveal their secrets.

If an NDA is properly crafted, its stipulations will be legally binding and any breach of contract may result in legal action for the offending party. Usually, this action involves termination of employment and/or claims for damages. 

When creating an NDA, you should always keep the following points in mind – 

  • Define your terms 
  • Specific your time frame
  • Identify the parties involved
  • Steer clear of improper conduct.
  • Identify the consequences of a breach of contract.

NDAs aren’t always set in stone, and certain restrictions may be thrown out by the courts. If, for example, an individual was placed under duress and forced to sign an NDA, the document will not be considered legally valid or binding. 

NDA templates are available for free online for any person wishing to create their own. While individuals may do it themselves, it is advised that they seek out the help of a trained professional to ensure that the document they craft is legally acceptable. 

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

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