The difference between Non-Disclosure Agreements (NDAs) and confidentiality agreements

Privacy matters — especially in the world of business, where proprietary information is often all that separates success from failure. Non-Disclosure Agreements (NDAs) and confidentiality agreements are two ways companies protect this information from third parties and competitors. Think of them as a legal gag that stops people from sharing sensitive information without the other party giving them permission. If they break that rule, there can be legal consequences.

But what is the difference between NDAs and confidentiality agreements? Understanding the nuances can help your company keep its confidential information safe from third parties, competitors, and the public at large. 

Read on to learn how to use each one without compromising proprietary information.

Are NDAs and confidentiality agreements the same?

“Non-Disclosure Agreement” and “confidentiality agreement” are terms that are often used interchangeably. You may also hear the phrases “confidential disclosure agreement” or “proprietary information agreement”  occasionally. All these terms point to the same basic idea — a legal document that creates a confidential relationship between two or more parties. Some people may prefer one term or the other, but there’s no widely accepted distinction between them.

In some cases, people may use “Non-Disclosure Agreement” to refer to a situation where one party prevents another from disclosing information, and “confidentiality agreement” for a situation where both parties restrict each other’s ability to disclose information. Only a portion of the population has adopted this framing, however. The terms are not considered legally distinct. 

If you’re weighing the benefits of an NDA versus a confidentiality agreement, you may be asking the wrong question.

Mutual vs. unilateral NDAs

While a non-disclosure agreement and a confidentiality agreement may be the same thing, there are still two distinct types of NDAs. Each one represents a different relationship between those involved.

The first type is the unilateral NDA. In this arrangement, one party tells the other not to share or profit from sensitive information. These NDAs are the bread and butter of confidentiality agreements. They’re typically created by organizations and signed by employees and others who might be privy to sensitive information. For example, a start-up pitching a new technology might ask an investor to sign an NDA to protect its proprietary technology.

The second type is the mutual NDA, which is a bit rarer. These NDAs are used when two or more parties share information between themselves, but don’t want it to be used outside of that. For example, should two companies wish to leverage each other’s technological expertise, they might sign an NDA to keep that knowledge between each other.

Think of unilateral NDAs as a one-way street, and mutual NDAs as a two-way street.

When should each type of NDA be used?

Unilateral and mutual NDAs each offer unique advantages, so it’s important to know when to use them. 

Let’s look at some common situations and see which type of NDA suits each one best:

1. Hiring new employees: It’s not uncommon for companies to have new employees sign unilateral NDAs to protect their data, internal processes, and client information. Laws like the Health Insurance Portability and Accountability Act (HIPAA) already protect individual privacy, so the one-way street is perfect here.
2. Partnering with freelancers and consultants: Even temporary partnerships often call for NDAs because project data, intellectual property, and other complexities are involved. This is especially true for consultants, who often need a higher level of access to information to do their work. Unilateral NDAs make that possible while still protecting the organizer.
3. Evaluating new vendors: Formal discussions around potential business partnerships often include disclosure of sensitive information, like product roadmaps, pricing information, and potential business partnerships. Your prospective partner shares similar concerns. In cases such as these, mutual NDAs are often the best option, as they protect everyone.
4. Exploring mergers and acquisitions: Because mergers and acquisitions require absolute honesty from both parties, mutual NDAs are best. They protect each company’s financial and strategic data, even if the merger or acquisition isn’t successful.

Remember, always commit to an NDA before revealing anything sensitive. It’s the best and safest way to do business.

What kind of information is covered by NDAs?

NDAs are designed to protect confidential information, but it can be hard to tell what counts as confidential. Is there a rulebook governing what is and isn’t sensitive? Is it arbitrary?

The answer is that it’s neither. The contract creator(s) get to specify exactly what is and isn’t deemed confidential. For instance, you might identify customer lists, source code, and financial projections as confidential information. You can then take legal action if that information is shared without your consent.

This power comes with a lot of responsibility. It’s crucial to clearly and precisely define the breadth and scope of the information the NDA covers. Vague terminology leads to loopholes, and if a key category is left out, it will be impossible to win against the other party in court. When drafting an NDA, use many specific categories to make sure all your bases are covered.

The NDA should also define carve-outs, or exceptions, that don’t count as confidential information. Common carve-outs include information that the signer already knows, information that becomes public knowledge, and information that develops independent of the NDA. These carve-outs protect the signer and clarify what they can legally discuss outside a courtroom.

The NDA’s time frame is not automatically indefinite, either. The term of the agreement has to be stated in the agreement itself. Many companies choose to set terms of 3-5 years, but NDAs often extend far beyond that. Once it approaches its expiration date, the NDA can be renewed or allowed to expire. If it expires, the confidential information it protected can be shared and used. 

There is an exception, however. Some parts of the agreement can include a survival clause, which extends the term for those categories. Trade secrets, for instance, are often given an indefinite survival period so that, even after the NDA expires, the trade secrets can’t be used legally. These additional clauses are a great option due to the fact that some information is always worth protecting.

That said, terms and survival clauses shouldn’t be abused. If the agreement doesn’t set a reasonable term for expiration or overuses survival periods, it may be unenforceable in court.

Why poorly optimized daily operations produce subpar agreements

A poorly-crafted NDA doesn’t just happen overnight. It’s often the result of poor day-to-day operations over time. But which ones, specifically? 

Compare your NDA process to the list of potential problems below and see if anything raises a red flag:

• Inconsistent templates: Many companies use templates to create their NDAs since many of the terms they need are the same. In some cases, all that really needs to change are the name and the dates. Problems arise when there are different versions of the same template or the template isn’t updated to reflect current company standards and compliance guidelines. This often results in outdated (and noncompliant) contracts that leave your company’s data exposed.
• Poor visibility: If your company doesn’t have a centralized contract repository, it’s easy to lose sight of obligations. Contracts might get hidden away in filing cabinets that only a handful of people can find. They might get stored in several different hard drives or shared drives. These poor storage systems can cause your organization to violate terms it isn’t aware of or struggles to hold NDA signers to the standards they agreed to. They also make work much harder for legal and compliance teams.
• Information silos: If the sales team uses one NDA template and the HR department uses another, your company has information silos. This means information is isolated to a particular department or sphere of the company, and those outside of the silo can’t benefit from the information. This condemns those teams to data gaps and sending unnecessary emails back and forth all the time, and subpar NDAs are often the result.
• Manual obligation tracking: Deadlines, contract terms, and survival periods are a lot harder to track when your company is dealing with hundreds of them. Legal team members have to dig through these files by hand to assemble lists of obligations, and some NDA obligations might slip through the cracks as a result. 
• Poor agility: Laws, regulations, and the market are all constantly changing. If your company can’t respond to these changes quickly, NDAs and NDA templates may become irrelevant or inaccurate. This can lead directly to legal trouble and the release of confidential information. During uncertain times, that’s the last thing you want.

The strategic cost of subpar agreements

A vague, contradictory, or inappropriate NDA can open the door to several problems, such as legal issues or an inability to protect trade secrets. 

But that’s not all. Low-quality NDAs can have more subtle negative effects on your business, including:

• A weakened legal position: NDAs require precision, and that rule extends to both their form and their content. If a poorly designed template is used or terms aren’t defined, your company is immediately put in a weaker position in a courtroom setting. The entire NDA may even be ruled as unenforceable, making it virtually impossible to protect your information.
• Damaged relationships with business partners: Building trust with business partners is hard, but losing it is easy. Don’t let an overreaching or one-sided NDA be the reason the relationship falls apart. Subpar agreements show your partners that you don’t trust them the way they trust you, which can lead to unnecessary friction and lay the groundwork for a broken relationship.
• Lost competitive edge: Leaked strategies and trade secrets can seriously tank company performance. If the NDA doesn’t provide the proper protections, all that information can be revealed and used by competitors. This would immediately compromise your company’s market position and maybe even its unique appeal. 
• Lengthy negotiation cycles: Poorly written and edited NDAs can drag your company back into negotiations. This can lead to revision cycles, forcing your legal team to clarify or rework terms over and over. This is pretty frustrating for them, but it also slows things down for everyone else.
• Compliance and auditing failures: If an NDA doesn’t adhere to industry regulations, it can lead to failed audits, fines, and other legal issues. All agreements should be inspected and edited by compliance teams. Otherwise, your company may have to burn additional time and resources to resolve the issue.

How NDAs and CLM platforms work together

Luckily, you can address common NDA-related issues with a Contract Lifecycle Management (CLM) platform. These systems allow your company to embrace digital contracting by creating, managing, and monitoring all types of agreements within a single system. No more information siloes — handle everything from NDA creation to contract negotiation in the same place.

Other features include:

• A centralized template and clause library
• Automated, self-service NDA generation
• Intelligent review processes
• A searchable repository of agreements
• Automated alerts for expirations and renewals

Optimize your NDAs with Agiloft

Building and monitoring an NDA can feel like an uphill battle, especially when it’s one of many complex contract management processes. Simplify things for yourself and all your teams with Agiloft’s award-winning CLM platform. More than 95% of our customers stick with us because our data-first CLM platform streamlines contract creation, boosts visibility across teams, and organizes every single company contract in one easy-to-use interface.

Contact us to book a free CLM platform demo today!