Do you need someone to sign an NDA? | The Australian laws that surround this must-have
Nobody wants their business plans or ideas stolen. But sometimes you need to disclose information to other parties in order to keep things moving forward.
Luckily, Australian business law has your back here! You can use an NDA to prevent people from sharing or using information that could cost your business in the long-term.
I hear the phrase ‘NDA’ thrown around a lot in business conversation, but it seems as though not many people really understand what it is. So let’s dive into NDAs: what they are, when you need them, and when you don’t.
What is an NDA?
An NDA (Non-Disclosure Agreement), also known as a confidentiality agreement, is a legal contract (when drafted properly). It sets up the legal framework to protect ideas and information between two parties. In most cases, an NDA will protect both parties who sign it.
They’re not just for startups: NDAs can be used throughout your business’s life-cycle. Famously, companies like Coca-Cola and KFC have used NDAs to protect their recipes for over 100 years!
An NDA (again, when drafted properly) is legally enforceable. If one of the parties is found to have breached the agreement, they can be taken to court and face potentially significant financial consequences.
How do I get an NDA?
This is not a one size fits all document. Your NDA will need to be tailored to the circumstances that apply to your situation.
It’s important to note here that an NDA will only be as good as the drafting, so if you think you can whip something up on a sheet of paper and that ‘she’ll be right’, think again. It’s a legally binding contract that you may need to one day rely on in court, so like all important business documents, it’s best to have it drafted properly by a lawyer who knows what they’re doing.
When you need an NDA
The idea behind using an NDA is to protect confidential or sensitive information which needs to be shared between two parties for a particular purpose.
Note: if there isn’t a good reason to share sensitive information, it’s best to keep it to yourself!
The obligations in an NDA will be designed to ensure that the person or organisation who gains access to that information doesn't disclose it to a third party.
Most often, you would use an NDA to protect:
Financial information
Trade secrets
Intellectual property
Business plans and processes
Marketing plans
Customer/client and supplier information
If you find yourself in a situation where you need to share information with another party, and that party could use that information to compete with you, or for their own personal gain, an NDA is going to be the document that ensures your peace of mind.
When you don’t need an NDA
An NDA isn’t the only business document that protects confidentiality. Some relationships are governed by other contracts that incorporate confidentiality clauses.
For example, your employment contracts will have confidentiality obligations clearly laid out, which means you don’t need a separate NDA as well as your employment contracts for your employees.
The same applies with your independent contractors, and your sub-contractors. Confidentiality is important to protect your business when working with contractors, and properly drafted and tailored contractor agreements will deal in detail with confidentiality obligations. So you don’t need a separate NDA in addition to your contractor agreements.
NDAs will be better utilised in the absence of a more formal agreement, as stand alone agreements when you are sharing sensitive information with a third party. For example, when you are undertaking due diligence for the potential sale or purchase of a business, or when you are exploring potential business opportunities with another party.
What happens if someone breaches the NDA?
An NDA is a legal contract, and it will hold up in court (one more time: IF it’s properly drafted, so that it constitutes a proper contract).
The consequences if a party breaches their obligations under an NDA can land them in court being sued for breach of contract. If you or your business suffer financial or reputational loss or damage as a result, then the financial risk to the other party can be significant.
To help you ensure your small business is legally complaint and protected, you might also like to read our article Australian Law 101 which is another great resource for small business owners.
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