Most businesses will have employees, freelancers, and anyone with access to trade secrets to sign a non-disclosure agreement. This ensures that the person or company is legally bound to keep certain information a secret. Knowing what to include and how to structure the NDA however, is not something that comes naturally. This best practice guide will help make everything clear on how to create an NDA.
It doesn't matter what kind of non-disclosure agreement is being created. Certain elements should always be included to ensure that the agreement protects secrets of the business. These elements include:
Definition: This is the most important element as it defines what is considered confidential. The NDA has to specify what is considered a trade secret but should not directly mention the secret. For example, it can mention customer contacts or food recipes without actually revealing any contacts. Avoid broad terms like “business practices” and instead define such practices without going into detail.
Non-Use Clause: The NDA should restrict more than just revealing secrets but also the use of such secrets. Usually, this clause prohibits the use of secrets learned for the duration of the project. This means the individual or business cannot work on a similar project for a competitor and use the same algorithms, production road map, recipe, etc for the stated duration. This clause however shouldn't prevent the other party from working on similar projects in the future. Although some organizations may include a Non-Compete clause in this section, it is usually rejected by the other party since it hinders future employment.
Third-Party Inclusion: Sometimes the party must include a third party to help complete the project. This section provides for such circumstances and binds the associate to the NDA. It is necessary to define who is considered an associate and what kind of information may be shared with such a party. There should also be a provision for the disclosing party to be notified if an associate will be involved.
Duration: This provision spells out the period through which the NDA applies. Usually, this is between 2 to 5 years. If the duration is too long, most people will decline to sign it and if it is too short, the organization will have their secrets in the hands of competitors too quickly for them to have a strong foothold in the market.
Return Provision: This clause requires that the recipient of secret information is expected to return or destroy particular documents on request from the provider. Such information needs to be defined in this section and the action to be taken must also be clearly stated. This can include digital documents, actual files, receipts as well as tools like seals, keys, and so on.
Arbitration Provision: Time, money, and stress can be saved if you have in place an option for settling disputes. You do not need to go to court every time there may be a problem. The arbitration provision spells out what procedures will be followed to resolve disagreements outside of the court, but laws governing this provision need to be included. Different jurisdictions may require certain procedures for arbitration.
Audit Rights: Where applicable, a clause can be included that allows the provider of information the right to audit the way information and tools are being used by the other party. This is particularly for NDAs that involve the performance of duties on separate premises. An example is an outsourced firm creating software on behalf of another.
Signatures: Simply reading through an NDA and saying you agree isn't enough. For the document to be legally binding, both parties should append their signatures. It is more important that the party being provided with the secrets signs the NDA.
An NDA can be a complex document to create, because of this modern companies resort to technology to ease the process. The use of templates and automation of these documents can help ensure that all the necessary elements are included in the NDA and the company’s secrets are fully protected under the agreement. It is also cheaper since you do not need to involve a technical person every time you need to draft a non-disclosure agreement.
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