Using non-disclosure agreements legitimately

What is a non-disclosure agreement?

Situations can arise where confidential information needs to be shared with certain individuals but it is imperative that this information is not divulged further. A non-disclosure agreement (NDA) is a legal agreement used to protect the use of confidential information.

How do NDAs work?

NDAs create contractual relationships between the parties who enter into them. NDAs govern these relationships by containing provisions which set out; the permitted use of the confidential information, obligations to keep said information confidential and the consequences of breaching any obligations to do so.

Recent abuse of NDAs

Although nothing new, NDAs have been the subject of recent news headlines. Instigated by the scandal surrounding film producer Harvey Weinstein, NDAs have come under scrutiny due to their increased use to prevent individuals from speaking about sexual harassment, mistreatment and misconduct. The misuse appears to be a widespread problem, with UK universities having spent around £87 million on pay-offs with NDAs since 2017. This abuse has also attracted political attention, resulting in an inquiry by the House of Commons Women and Equalities Select Committee (the 'Select Committee Inquiry') which concluded that “this cover-up culture has to be challenged”.

Using NDAs legitimately

Despite the media’s focus on the misuse of NDAs, NDAs can be and are widely used legitimately. If not used in appropriate situations, businesses or individuals could be unnecessarily exposing themselves to the risk of misuse of confidential information.

In light of the recent abuse of NDAs, the Select Committee Inquiry, the Law Society and Solicitors Regulation Authority have published guidance and expectations on the proper use of NDAs.

5 factors that should be contemplated when considering NDAs
  1. NDAs must not be used for improper purposes. As highlighted above, it is not a legitimate purpose to use an NDA to prevent disclosures about breaches of the law or illegal activity.
  2. Be mindful of carve out clauses. NDAs cannot be used to deter people from making disclosures to regulators or law enforcement agencies nor do they prohibit people from undertaking their reporting obligations. A clause which permits disclosure only 'as required by law' would be deemed inappropriate as it does not allow an individual to choose to make a disclosure.
  3. Care needs to be taken when considering what disclosure a NDA is seeking to prohibit. For instance, certain disclosures made by employees are protected by whistleblowing legislation meaning that any NDA clause designed to prevent an employee from whistleblowing would be void and unenforceable.
  4. NDAs should not impose restrictions on a party’s ability to participate in criminal or other proceedings, or deter them from taking part in those proceedings. It has been speculated that such clauses may amount to an attempt to pervert the course of justice, which is a criminal offence.
  5. NDAs must never be used to take unfair advantage of vulnerable individuals. For example, employees without legal representation may be severely disadvantaged in the lead up to an NDA being signed.

All things considered, those seeking to enter into NDAs should proceed prudently and specialised legal advice should be taken on the risks and implications involved.

If you have any questions on this article or have an enquiry in relation to NDAs or the law of confidential information, please contact us. For further information about confidential information, we have prepared the following insights that can be viewed by clicking on the below links:

What is confidential information?

Protecting confidential information

Enforcement and remedies for misuse of confidential information

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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