Whether it’s discussing a potential partnership, sharing financial data with investors, or developing a new product with external organisations, a non-disclosure agreement (NDA) is a legally binding contract that prevents the recipient of sensitive information from disclosing it to other parties without permission. 

One-way NDAs

Also known as unilateral NDAs, these are used when only one party is sharing confidential information, for example:

• A founder sharing sensitive details to potential investors
• A business giving a freelancer access to internal documents and client data
• A company providing a journalist with an unreleased product for review

Mutual NDAs

Also known as bilateral NDAs. Used when both parties are sharing confidential information with each other, for example:

• Two businesses are developing a new product together
• A business is thinking about buying or merging with another
• Early partnership negotiations

How do non-disclosure agreements work?

The specifics detailed within an NDA will be tailored to the situation at hand, but the key elements it will contain are:

• Clearly defined confidential information - An exact statement of the information covered by the agreement. This can be a broad definition, such as “all business information shared during internal meetings”, or more specific, such as “the financial information contained in the document dated XXX”. It’s just as important to specify any information that isn’t covered by the NDA, such as information that is already publicly available or already known by the recipient.
• Setting boundaries - Who can access the information and under what circumstances. An NDA might permit the sharing of information with specific entities, like employees or regulatory authorities, while prohibiting any other disclosure.
• Establishing obligations - Rules the recipient must follow. An NDA can require more than just not sharing the agreed-upon information. It may require the recipient to take reasonable steps to prevent unauthorised access to the information, and it could limit the ways in which the recipient themselves is allowed to hold or use the information.
• Specifying duration - How long the obligations last. There’s no set time limit for an NDA, allowing the involved parties to determine the best duration for the situation. More on this to come.
• Setting out consequences - What happens if the terms are breached. This typically includes the right to seek an injunction (a court order preventing further disclosure) and to claim damages for any losses caused by the breach.

How long do non-disclosure agreements last?

While there’s no standard duration for an NDA, Scottish law requires the timeframe to be reasonable and proportionate to the nature of the information being protected. Excessively long confidentiality periods may be unenforceable if they go beyond what’s necessary to protect legitimate business interests.

Fixed-term NDAs

With a fixed-term NDA, the obligations last for a specified period of time. This is the most common approach in commercial contexts, as most commercial information loses its competitive value over time as strategies change and technological advances move on.

Event-based NDAs

Rather than a fixed date, event-based NDAs tie the confidentiality to a particular event - usually the completion of a project or when the information enters the public domain through agreed, lawful means. Event-based NDAs are useful when the timing of the desired event is uncertain.

Indefinite NDAs

These agreements impose perpetual confidentiality with no end date, most often used for genuine trade secrets that don’t diminish in value over time. However, courts are cautious about imposing never-ending restrictions. Indefinite NDAs face greater scrutiny when challenged - you’ll likely need to demonstrate that indefinite confidentiality is reasonable for the nature of the protected information.

Are non-disclosure agreements legally binding?

If NDAs are properly drafted and serve a legitimate purpose, then they are legally binding under Scots law, leaving the recipient liable to be sued for breach of contract if the terms are breached. However, the courts have the power to refuse enforcement under certain circumstances:

• It sets out unreasonable restrictions, such as overly broad definitions of the confidential information or an excessively long duration
• It attempts to conceal illegal activity or prevent someone from fulfilling legal obligations
• It’s designed to silence victims of unlawful workplace conduct, such as harassment or discrimination
• It restricts fundamental rights, including the right to provide evidence in court proceedings, make protected disclosures under whistleblowing legislation, and disclose information to regulatory authorities like HMRC. A properly drafted NDA should explicitly preserve these rights, not try to override them.

Can you be forced to sign a non-disclosure agreement?

In short, no, you cannot be physically forced to sign an NDA, and an NDA signed under duress or undue pressure would likely be deemed unenforceable by the court. However, refusing to sign an NDA may have practical consequences, such as the other party refusing to share sensitive data. This is completely reasonable as neither party is obligated to share confidential information without protection. 

Can anyone make a non-disclosure agreement?

Any individual or business can make an NDA. While there’s no legal requirement for an NDA to be drafted by a solicitor, it’s advisable to seek legal advice before writing or signing an NDA.

If you’re asking someone to sign an NDA, you have a responsibility to ensure the agreement is fair and they understand what they’re signing.  Template NDAs downloaded from the internet do not take your individual circumstances into account, and often neglect the nuances of the law; a poorly drafted NDA may be deemed unreasonable and unenforceable, rendering it useless if the terms are breached.

A solicitor can draft an agreement tailored to your specific needs that balances the interests of all parties while remaining on the right side of the law.  

No room for error

When used appropriately, NDAs are invaluable tools that facilitate collaboration that might otherwise be impossible. Whether you’re being asked to sign an NDA or asking others to do so, consult a solicitor to ensure the agreement is properly drafted, appropriate, and enforceable.