If you’re planning to enter into a business relationship with an individual or organization where both parties will be sharing confidential information, a mutual non-disclosure agreement (NDA) is a good way to protect both parties.
Mutual NDAs prohibit both parties from disclosing agreed-upon confidential information they receive in the course of discussions, negotiations, or other business activities.
Here’s what you need to know about mutual NDAs, and whether your company should use one.
What is a mutual non-disclosure agreement?
A mutual non-disclosure agreement protects sensitive or proprietary information between two or more parties. Examples of protected confidential information include:
- Financial information
- Marketing or business plans
- Customer or prospect lists
- Manufacturing or engineering processes
- Technical characteristics or formulas
- Product prototypes or specifications
The protected information should be appropriately defined within the agreement, and should not be so broad that the mutual NDA encompasses information which is not actually confidential. This typically excludes information publicly known or available at the time of disclosure, or information already disclosed to the other party before they agreed to confidentiality obligations. Furthermore, many states prohibit non-disclosure agreements from restricting disclosure of unlawful employment practices, like harassment, discrimination, and retaliation. While this is typically more applicable to unilateral employment NDAs, it’s important to ensure that your agreement is compliant.
When to use a mutual non-disclosure agreement
Generally, mutual NDAs should be used when both parties to the agreement have a confidentiality interest to protect. Signing a mutual NDA protects both parties against unauthorized disclosure to third-parties. Generally, an NDA should be signed before the parties disclose confidential information.
What is the difference between an NDA and a mutual NDA?
The biggest difference between a unilateral NDA and a mutual NDA is who is bound to confidentiality obligations. Under a mutual NDA, both parties are bound to confidentiality obligations.
In contrast, a unilateral NDA binds only one party under confidentiality obligations. For instance, a software company may require new engineers to sign a unilateral NDA that prohibits them from disclosing information about the company’s software development processes.
How to create a mutual NDA
To create a mutual NDA, there are a few key points to keep in mind:
- Protect a legitimate business interest: Generally, non-disclosure agreements must support a “legitimate business purpose,” such as protecting trade secrets and proprietary information.
- Comply with legal obligations: Some states have laws regarding non-disclosure agreements, what you can protect, and for how long. For example, California encourages setting a time limit on non-disclosure obligations in employment contexts. Federal law and various state laws prohibit parties from limiting disclosure of facts related to harassment, discrimination, and retaliation claims based on any protected category, such as sex, national origin, race, disability, and religion.
- Define the confidential information and exceptions: The confidential information should be clearly defined—and you should include important exceptions, such as publicly known information or information already disclosed without confidentiality obligations.
- Include notice required by federal law: For NDAs with individuals, whether as an employee or independent contractor, companies often include a notice regarding immunity from liability for limited disclosures of trade secrets under the Defend Trade Secrets Act of 2016.
Because mutual non-disclosure agreements should be specifically tailored to each party and the applicable state and federal laws, a one-size-fits-all template will not be satisfactory for most situations. On the other hand, having a lawyer research and draft an NDA for your company can be time-consuming and expensive.
SixFifty offers the perfect middle ground: automatically generated mutual NDAs that are customized to the needs of your company. Simply answer a few questions about the parties and the agreement and download your generated document in Microsoft Word format for ease of use.
Create a mutual non-disclosure agreement with SixFifty
Generating your own mutual non-disclosure agreement with SixFifty is fast, cost-effective, and easy. Our legal tools pair easy-to-use technology with real legal expertise, so you can get the documents you need at a price you can afford. Reach out today to schedule a product demo!