Non-disclosure agreements

Non-disclosure agreements

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Non-disclosure agreements

When information is given to third parties in confidence, it is necessary to ensure that it cannot be divulged to anyone else. Whilst the law provides some protection against this, it is often best to enter into a written non-disclosure agreement (N.D.A.).

Where the information is formal and important enough to justify a full written confidentiality agreement, the following matters can be dealt with in the agreement:

  • For whose benefit can the information be used?
  • To whom can the information be disclosed and whether these third parties have to sign a confidentiality agreement?
  • On what terms is the information to be used?
  • How can the information be reproduced and stored?
  • When does the obligation to pay for the information arise?
  • What happens if the recipient claims he already possesses the confidential information?
  • What happens if someone else later publishes the information?
  • In what circumstances must the information be returned to the owner?

Alternatives to N.D.A

There are instances where, for example, an inventor sends confidential information concerning their invention to another person in order to discuss possible future co-operation.

In the absence of any agreement on confidentiality, it is possible for that other person to refuse to acknowledge that they cannot divulge the information passed to them. A non-disclosure agreement would offer the best protection to the inventor. Failure to agree terms of confidentiality could put the ability of the inventor to obtain a patent over the product in jeopardy.

However, it is not always practical to insist that a non-disclosure agreement be signed before negotiations. In such circumstances, it is best for the inventor to send the confidential information in a sealed envelope clearly marked 'confidential', not to be opened until the accompanying letter is read and its terms accepted.

As a back up, the inventor can deposit a sealed copy of such letter with a third party (with the third party endorsing the date of receipt on the sealed envelope) or post a copy to themself by recorded or registered delivery. The unopened envelope endorsed with the date of receipt can provide evidence in any later litigation that the confidential information was in the possession of the owner at the relevant time.

Covenants in restraint of trade

Apart from entering into a confidentiality agreement, the parties can agree on covenants in restraint of trade. A covenant is a contractual promise. These covenants can cover non-competition (for example, a promise by an employee not to set up or join a business that competes with the employer's business after the end of the employment), non-solicitation of customers (for example, a promise by one business not to poach customers from another business) as well as non-disclosure. They may be found in agreements with employees, franchises, distribution agreements and agency agreements.

For a covenant in restraint of trade of a former employee to be upheld, the covenant has to be reasonable both as to geographical area covered and the duration of the restriction. It has to be used only to the extent necessary to protect a legitimate interest.

A practice has grown up to ensure non-disclosure by key personnel through the inclusion of so-called 'garden leave' clauses in contracts of employment. This describes the practice whereby an employee who is leaving a job (having resigned or whose employment has otherwise been terminated) is instructed to stay away from work during their notice period, while still remaining on the payroll. This practice is often used to prevent employees from taking with them up-to-date (and perhaps sensitive) information when they leave their current employer, especially when they are leaving to join a competitor.

Employees continue to receive their normal pay during garden leave and are covered by any contractual duties, such as confidentiality agreements, until their notice period expires.

To be enforceable, the 'garden leave' clauses have to be reasonable.