08 Dec HUSH YUH MOUTH! A PRIMER ON NON-DISCLOSURE AGREEMENTS (NDAS)
An NDA (also known as a confidentiality agreement) is a contract whereby a party gaining access to sensitive information agrees not to share it with others.
NDAs have received negative coverage in the news lately as a result of the allegations against Harvey Weinstein, Philip Green and others. Clearly NDAs have been used (or abused) in workplace harassment/assault settlement agreements. Such agreements often require one party to keep quiet about particular allegations, usually in exchange for a monetary settlement. The practice of using an NDA to cover up allegations of harassment in the work place has attracted considerable (and understandable) criticism and a committee appointed by the House of Commons in the UK recommended that the Government should take steps to “ensure that NDAs cannot prevent legitimate discussion of allegation of unlawful discrimination or harassment”.
Their misuse aside, NDAs also exist for legitimate commercial purposes and are frequently used to protect genuine trade-secrets and intellectual property. One could easily imagine the benefits of an NDA to a party presenting a prototype of a new invention to a potential investor, or to an employer seeking to part ways with an employee who would have had access to sensitive proprietary information, such as the secret ingredients to a recipe.
So how does one go about putting together a useful NDA?
Firstly, you need to consider who are the parties to the agreement and what is it trying to achieve. Having a clear ‘Parties’ clause is important for ensuring that the information does not slip out through a related party that may have been overlooked. Furthermore, in considering who the parties are you should consider the type of NDA – as it may be unilateral (for example in the employer-employee context where an employment contract imposes an obligation of confidentiality) or bilateral/multilateral (for example where two or more companies agree to exchange sensitive information for the purposes of evaluating whether or not to deepen their relationships) and therefore, the agreement could potentially stipulate that the information could be shared with each company’s external accountants but that they must also keep it confidential.
Once you understand who needs to keep quiet, you should include a clear definition of the information or type of information which they must keep quiet about. Defining which information should be kept confidential can be a tricky because you may be tempted to use broad language so as to minimize the risk that you leave any cracks open for information to slip through but, on the other hand, if you aren’t specific enough then your agreement may be difficult to enforce. In some circumstances it may be useful to include a stipulation that the information being provided can only be used for that specific permitted purpose. For example, that information provided from one company to another detailing the manufacturing costs of specific goods can only be used for the specific purpose of valuing the company for the purposes of an amalgamation.
Finally, you should consider expressly stipulating the consequences for a breach of the NDA. While the non-breaching party would generally be entitled to damages stemming from a breach of contract, it may also make sense to expressly include other specific repercussions which would flow from a breach – for example, you might include that a breach of confidentiality could form a basis for termination of employment or an express acknowledgement that the other party may obtain injunctive relief.
It goes without saying that a well-drafted NDA can go a long way to ensure that confidential information remains protected.
What does it mean for you if you’re on the receiving end of an NDA?
Generally, in the employment context, even without an NDA, you are expected to remain fairly tight-lipped about your employer’s sensitive information while you remain employed. But, if your employment is terminated, then you will generally be free to use the skills and general knowledge which you developed during your employment. However, if you are subject to an NDA it may specifically stipulate that ‘trade secrets’ will continue to be protected even once your employment has ended.
Of course, ‘what constitutes a trade secret’ is a legal grey area with no clear answer. The courts have generally held that a ‘trade secret’ is information which, if disclosed to a competitor, would be liable to cause significant damage to the employer’s business. For example, they may include: secret manufacturing processes, special methods of construction or customer lists. In determining whether information constitutes a trade secret, the court will have regard to the nature of the employment, the nature of the information, whether the employer placed any emphasis on the confidentiality of the information, and whether the relevant information could be extricated from other information which the ex-employee would be free to use or disclose.
If you do expose confidential information in breach an NDA then, depending on the terms of the specific NDA, you may be liable for damages stemming from a breach of contract, misappropriation of trade secrets, copyright infringement, breach of fiduciary duty, conversion, trespass or patent infringement.
In summary, as we have seen in a number of recent public cases, Non-Disclosure Agreements have been misused to stifle allegations of harassment and discrimination. However, in most circumstances, NDAs serve a legitimate purpose and their importance, particularly in the context of commercial and employment law, should not be over-looked.
Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.
This Article was authored by David Hamel-Smith, Associate at M. Hamel-Smith & Co. David can be reached at email@example.com.