Written by Avinash Pillay | Queen’s Business Law Clinic | October 2021
Editors: Nicolas Guevara-Mann, Mikela Page
Often, businesses derive economic value from their confidential information. As such, it is important that they protect this information from leaking to the general public and competitors. Non-disclosure agreements, also known as NDAs and confidentiality agreements, are frequently used when valuable information must be disclosed to a third party, in order to prevent that third party from sharing the information. NDAs are commonly utilized in due diligence procedures that require both parties to disclose all their relevant information to facilitate the transaction.
An NDA can be one-way, or mutual. A one-way NDA is structured so that only one party is disclosing information while the other is receiving it. A mutual NDA contemplates that both parties can give or receive information, and it is confidential to both. When using a one-way NDA, it is important to remember that if you sign one, you are sworn to confidentiality, but the other party is not. An implication of a one-way NDA is that the receiving party cannot answer questions openly or in confidence of confidentiality.
There are several common terms that are seen in NDAs:
Parties: Identifies the individuals it applies to and if they are the receiving or delivering party.
Definitions: This section is mandatory because an NDA must define what is considered “confidential in nature” under the agreement.
Exclusions: Commonly used for practical purposes. For example, information that becomes generally available to the public or information that was already in the receiving party’s possession.
Permitted Purpose: Outlines for what purpose the confidential information is being shared and restricts the use of the information for that purpose alone.For example,if I share my business plans with a consultant so they can help with marketing, they may only use the information I gave them to assist with marketing).
Non-Disclosure: A standard inclusion, merely states that the confidential information cannot be disclosed for a different purpose than agreed upon.
Non-Solicitation of Employees: Used in a mergers and acquisitions context to prevent potential bidders from poaching the disclosed party’s employees. This is important when there is competition between the parties or when the employees are particularly experienced. These clauses may also appear in employment contracts to prevent a departing employee from poaching their previous coworkers.
Term: How long the NDA will last for (can be until death).
If your business must share valuable information with a third party in order to engage in a transaction, consider requiring them to sign an NDA or including a confidentiality clause in the contract. This will allow you to continue with your business while ensuring that your confidential information is shared with as few people as possible.
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