Understanding Non-Disclosure Agreements (NDAs)

What Is an NDA and When Should You Use One?

A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legally binding contract that establishes a confidential relationship between parties. The party or parties signing the agreement commit to keeping certain information secret and not sharing it with unauthorized third parties.

You should consider using an NDA when:

• Sharing proprietary business information with a potential partner, investor, or collaborator
• Hiring employees or contractors who will have access to trade secrets
• Entering negotiations for a merger, acquisition, or joint venture
• Presenting an invention or business idea to a potential buyer or licensee
• Receiving services from a third party who may have access to sensitive data
• Sharing financial, technical, or strategic information during due diligence

Mutual vs. One-Way NDAs

Mutual NDA (Bilateral): Both parties agree to keep each other's information confidential. This is most common in partnerships, joint ventures, and business negotiations where both sides share sensitive information.

One-Way NDA (Unilateral): Only one party (the Disclosing Party) shares confidential information, and the other party (the Receiving Party) agrees to keep it secret. This is typical in employer-employee relationships, contractor agreements, and investor pitches.

Key Provisions Every NDA Should Include

• Definition of Confidential Information: Clearly describe what is considered confidential. Broad definitions offer more protection but must be reasonable.
• Obligations of the Receiving Party: Spell out what the receiving party must do (and not do) with the information.
• Exclusions: Carve out information that is not considered confidential (publicly known, independently developed, etc.).
• Term and Duration: Specify how long the agreement lasts and how long confidentiality obligations survive after termination.
• Remedies: Include provisions for injunctive relief, as monetary damages alone may not adequately compensate for a breach.
• Return or Destruction of Information: Require the return or destruction of confidential materials upon termination.
• Governing Law: Specify which jurisdiction's laws apply to the agreement.

Canadian Contract Law Basics for NDAs

In Canada, NDAs are governed primarily by provincial contract law, supplemented by federal legislation in certain areas. Key considerations include:

• Formation Requirements: A valid NDA requires offer, acceptance, consideration (something of value exchanged), and intention to create legal relations.
• Provincial Jurisdiction: Each province has its own courts and procedural rules. Choose the province where enforcement is most likely needed.
• Reasonableness: Courts may refuse to enforce NDA provisions that are overly broad, unreasonable in duration, or that effectively act as non-compete clauses.
• Privacy Legislation: Federal (PIPEDA) and provincial privacy laws may affect how personal information is handled under an NDA.
• Quebec Distinction: Quebec operates under a civil law system rather than common law. NDAs for Quebec-based parties may require additional considerations.

Limitations of NDAs

• NDAs cannot prevent someone from using general skills and knowledge gained during a relationship
• Enforcement can be difficult and costly, especially across borders
• An NDA does not prevent disclosure required by law or court order
• Overly broad NDAs may be found unenforceable by courts
• An NDA alone does not replace proper information security practices
• Proving a breach occurred and quantifying damages can be challenging

When to Consult a Lawyer

While this generator provides a solid starting template, you should consult a qualified legal professional in the following situations:

• The information being protected has significant monetary value
• The agreement involves parties in different provinces or countries
• You are dealing with intellectual property, patents, or trade secrets
• The NDA is part of a larger transaction (M&A, licensing, investment)
• You need to include non-compete or non-solicitation provisions
• The other party has requested changes to standard NDA language
• You are unsure whether the NDA is enforceable in your jurisdiction

Common NDA Mistakes to Avoid

• Vague definitions: Failing to clearly define what constitutes confidential information makes enforcement nearly impossible.
• Missing exclusions: Without proper carve-outs, the receiving party may be unfairly restricted from using publicly available information.
• Unlimited duration: Courts may find perpetual obligations unreasonable. Even indefinite NDAs should have a survival period after termination.
• No remedies clause: Without specifying remedies, you may be limited to proving monetary damages, which can be difficult.
• Using the wrong type: Using a one-way NDA when both parties are sharing information leaves one party unprotected.
• Forgetting return-of-information provisions: Without this clause, the receiving party may retain copies of confidential materials indefinitely.
• Ignoring jurisdiction: Failing to specify governing law can lead to expensive jurisdictional disputes.