Why Data Disclosure Agreements are Indispensable

Sometimes, business relationships with employees, vendors, contractors, consultants, and other service providers may require sharing sensitive information with them. In such cases, you’ll want to control and specify precisely what that party can do with the data and how they should handle it. A data disclosure agreement facilitates this.

A data disclosure agreement is a contract between two or more parties that specifies the terms and conditions under which they will share, use, or disclose data.

These agreements outline the purpose of the data sharing, describe how parties will handle the data at each stage, and set required standards so that all parties involved in the data sharing know their roles and responsibilities.

Having a data disclosure agreement has many advantages:

• Protect sensitive data. A data disclosure agreement can help you prevent the unauthorized use or disclosure of sensitive data you share with another party, such as personal data and proprietary information.
• Specify authorized use. It will help you to state what the receiving party can do with the data shared and what is prohibited. This ensures each party knows what they can and can’t do with the data.
• Ensure data security. You can specify the security measures parties must implement to prevent unauthorized access, loss, or alteration of data.
• Comply with legal requirements. Privacy regulations like the General Data Protection Regulation (GDPR) mandate a data-sharing agreement between a data controller and a data processor. A data disclosure agreement will help you comply with privacy regulations if privacy laws protect the data you share.
• Encourage responsibility. Data disclosure agreements can specify parties’ liabilities if there’s a breach. This will provide additional motivation for parties to comply with the contract terms.

The provisions to include in your data disclosure agreement depend on the nature and purpose of the data use between you and the other parties, but here are some key provisions you should include in your agreement:

• Parties: State the parties’ names (the data provider and data receiver) and their contact information.
• Purpose of the agreement: Outline the scope of the data sharing, parties involved, and intended uses of the shared data.
• Description of data: This provision will describe the specific data types that will be shared or disclosed.
• Confidentiality: Clearly state the confidential nature of the shared data and bar the data receiver from disclosing it to any unauthorized party.
• Permitted use: This clause specifies the objective of the data sharing and how the data recipient can use the shared data. This will help ensure that the data recipient only uses it for the agreed-upon purpose.
• Data security: In this section, you will specify who is responsible for maintaining data security and the security measures they must implement. These may include specific file transmission methods, like encryption, a particular file format, and access control.
• Liability: Here, you can assign responsibilities and liabilities between the parties if there is an unauthorized data disclosure, breach, or agreement violation.
• Termination or modification: State the conditions that can bring the agreement to an end, how a party can terminate it, and how parties can decide to change the terms.

Not having a data disclosure agreement can expose your organization to several risks, including:

Legal risks

Data privacy laws like the GDPR require your organization to implement specific measures when you share protected data with another party. A data disclosure agreement helps you put those security measures in place and ensure the data disclosure complies with privacy laws. Without an enforceable contract, you risk violating privacy laws, facing lawsuits, and incurring significant financial penalties.

Reputational risks

If you don’t have a data disclosure agreement, there’s no way to regulate what the other party does with the shared data. This makes data breaches and unauthorized exposure more likely to occur. Also, your organization’s involvement in a data breach could lead to a loss of trust and credibility and damage your reputation.

Operational risks

A data disclosure agreement helps you protect the sensitive information you share with another party. Some of that information may be intellectual property, such as a trade secret that gives your business a competitive advantage. Without an agreement, the other party could disclose such sensitive information, making you lose your competitive edge.

Enforcing a data disclosure agreement can be challenging, but here are some ways to ensure compliance and protect sensitive information.

Identify the breach

Enforcing a data disclosure agreement starts with discovering the breach. You may need to establish processes to monitor compliance, such as internally reviewing data usage, monitoring data access logs, using specialized tools to detect suspicious activity, and working with third-party auditors to confirm you’re following the data disclosure agreement.

Send a formal warning

Once you identify a breach, your organization can send a cease-and-desist letter to the violating party. The letter should outline the details of the violation, demand that they cease all further unauthorized disclosures or uses, and state the deadline for complying with your demands.

Seek injunctive relief

If the breach continues after your cease-and-desist letter, you may need to file a lawsuit and request a temporary restraining order or get a preliminary injunction to prevent further unauthorized disclosures or use.

Pursue damages

You can request monetary damages if the breach has resulted in damages to your organization, such as financial loss or reputational damage.

Explore alternative dispute resolution

Consider whether you can resolve the dispute more effectively via an alternative dispute resolution method, such as arbitration or mediation.

Organizations use different types of data disclosure agreements depending on their need:

Non-disclosure agreements (NDAs)

Non-disclosure agreements are legally binding contracts that establish a confidential relationship between a party with sensitive information and another that will get access to that information. NDAs are also known as confidentiality agreements.

Data-sharing agreements (DSAs)

A data-sharing agreement is a legal contract that specifies the data parties are sharing and how they should be used. These agreements also detail the responsibilities of each party in the data-sharing process.

Data processing agreements (DPAs)

A data processing agreement is a contract that sets the terms of data processing between a data controller and a data processor.

Data disclosure agreements typically cover sensitive information, so you should review them thoroughly. Some of the benefits include:

• Minimizing the risk of data breaches. When you negotiate your agreement carefully, you can ensure it contains key provisions written in clear terms to protect your interests.
• Avoiding legal disputes. At the negotiation stage, parties can review the agreement, highlight areas they disagree with, and then arrive at a mutually beneficial conclusion. Parties are more likely to comply with a well-negotiated agreement.
• Protecting your business. Negotiating some terms, like the indemnification clause, can provide additional protection if there’s a breach.

When your organization shares sensitive business information with another party, consider using a data disclosure agreement to protect your data and provide guidelines for the data sharing. By setting clear terms, you safeguard your data, minimize the risk of breaches, and ensure privacy compliance.