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Different types of Non-Disclosure Agreements explained- [2021]

June 14, 2021

Before understanding the types of non-disclosure agreements, let’s first understand the meaning of a non-disclosure agreement.

What is an NDA?

A non-disclosure agreement also called NDA is an agreement between two or more parties in which confidential information is shared. The parties are obligated to protect this information under the terms and conditions mutually laid out and agreed upon in the beginning. In case of betrayal of any kind, legal action can be taken. It is commonly used by businesses collaborating with other businesses and having to share sensitive information.

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Types of Non-Disclosure Agreements

An NDA can be divided into 3 broads categories. These types of non-disclosure agreements are discussed below.

  1. Unilateral NDA
  2. Mutual NDA
  3. Employe-Employee NDA

What is a unilateral non-disclosure agreement?

A unilateral non-disclosure agreement is a type of NDA in which the sharing of confidential information is one-way. In this, the disclosing party is the one that gives the information to the other party and is under no obligation to protect the information of any kind. While there is a receiving party, which is being given information and has to protect it under the terms and conditions of the agreement. They share no information with the other party. An NDA is signed between the receiving and disclosing party that is mutually discussed and negotiated upon.

The confidential information shared may include financial statements, trade secrets, and business strategies. 

What is a mutual non-disclosure agreement?

A mutual non-disclosure agreement is an agreement in which all parties exchange confidential information with each other. It is a two-way agreement. The parties exchange information they would like to remain private. The other parties have to respect that and not disclose any sensitive information. In case they do so, they will have to suffer the consequences as per the agreement.  

Mutual non-disclosure agreement in itself has 2 types, namely bilateral NDA and multilateral NDA. They are discussed below. 

1. Bilateral NDA

Bilateral NDA is a type of mutual NDA in which there are two parties. Both the parties give each other confidential information that they must keep safe with themselves. Upon betrayal of any kind, the party may suffer consequences that were previously mentioned in the agreement. Legal action may also be taken against them.

2. Multilateral NDA

In multilateral NDA is the type of mutual NDA in which two or more parties are involved. Amongst these at least one is the disclosing party while others may be the receiving party. 

Mutual NDA is an integral part of any business collaboration as it safeguards the interest of a company and allows for healthy relationships between the parties. Not having a mutual NDA can have negative impacts such as

  • The release of sensitive information may interfere with the proper functioning of the company.
  • It may damage the reputation of a company
  • It may invite competition after the release of business plans and trade secrets. 

Hence, a mutual NDA is an important part of any business working together. 

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What is an employer-employee non-disclosure agreement?

An employer-employee NDA is an NDA signed between the two. It is done during the time a new employee is hired to work for a business. Considering an employee might not have secured a permanent job or even have secured a permanent job, the business has an NDA signed since it will protect the company in case the employee decides to quit or is fired.

This ensures that the confidential information remains confidential after the employee no longer works with the company yet also has an understanding of the company by knowing the information sensitive to the company. It signed with a set of terms and conditions laid out stating the consequences the employee may face in case of release of the private information of the company. 

What is the importance of a non-disclosure agreement?

Now, having discussed the different types of non-disclosure agreements, it is clear that an NDA plays an important role in a business of any kind. The following points discuss why an NDA is important. 

  • It protects confidential information and safeguards the intrests of the company.
  • It is a legal document, hence legal action can be taken in case the of any kind of betrayal.
  • It helps resolve any disputes that may take place in the future. 
  • It helps create healthy relations between two collaborators, employers and employees by ensuring trust. 

How to draft a valid non-disclosure agreement?

While drafting any of the different types of non-disclosure agreements, the following points must be included

  • Identification of the information that is confidential
  • Ways to deal with future disputes
  • Pre-requistes of the confidential information
  • Exceptions if any
  • Process after termination of agreement
  • Terms of conditions along with consequences

However, there are some ways in which an NDA can be invalided as well.

  • In case the confidential information being shared is already exposed to the public
  • No mention of guidance during compelled disclosure
  • No clarification of jurisdiction
  • Broad definition of confidential

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In conclusion, a non-disclosure agreement is a legally outlined document that helps protect confidential information. It can be signed between two or more parties. If it’s between two people then it is called a bilaterral NDA, however if it is between more than two parties it is called multilateral NDA. If the agreement is one-way, that is only one party is sharing the information while the other is recieving it, then it is called a unilateral non-disclosure agreement. 

It plays an important role in any business collaboration as it safeguards the interests of a business and helps protect it. To draft a valid NDA, the inclusion of definition and identification of confidential information, resolution of future disputes, exceptions, and terms, conditions, and consequences are vital. An NDA can be considered invalid in case the information is shared as confidential is already in the public domain. It can also be invalid if the definition of confidential is too broad. 

About Author

Bani is a student at Strawberry Fields High School and a legal content expert at eSahayak.

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