A non-disclosure agreement, often called an NDA, is a legal contract that obligates one or more parties to keep specified information confidential and to use it only for defined purposes. Non-disclosure agreements are one of the most common contracts in business, used in investor pitches, employment relationships, mergers and acquisitions, technology development, franchise negotiations, manufacturing arrangements, and creator brand deals. Non-disclosure agreements form the foundation of intellectual property protection for many businesses, including for trade secrets, technical know-how, models, algorithms, financial information, research information, and product information, that may not be protected by other forms of intellectual property protection.
Enabling business discussions and negotiations. A non-disclosure agreement allows parties to share sensitive information needed to evaluate an investment, transaction, or opportunity without exposing that information to misuse. Mutual non-disclosure agreements are commonly used where both parties expect to exchange confidential information.
Protecting client and customer information. A non-disclosure agreement can protect not only the business’s own confidential information but also information the business holds on behalf of clients, customers, and end users. This is generally relevant where the business is bound by upstream confidentiality obligations or privacy commitments that must be flowed down to employees, contractors, and service providers.
Defining permitted use and recipients. A non-disclosure agreement is used to restrict how the receiving party uses the information internally and whether the information can be shared with employees, agents, affiliates, advisors, or sub-processors.
Supporting enforcement and remedies. A non-disclosure agreement provides a contractual basis for injunctive relief and damages if confidential information is misused.
Supporting due diligence in transactions. A non-disclosure agreement is generally the first document signed in mergers, acquisitions, asset sales, share purchases, and investment rounds. It allows the parties to exchange financial statements, customer data, intellectual property records, and operational information needed to evaluate the transaction without exposing that information to misuse if the deal does not proceed.
Preserving competitive advantage. A non-disclosure agreement can protect the strategic information that underpins a business’s competitive position, including pricing models, customer acquisition strategies, supplier relationships, technical roadmaps, and confidential information and data that would be valuable to a competitor. Once this kind of information is disclosed without protection, the competitive advantage it represents may be difficult or impossible to recover.
Limitations Act, RSA 2000, c L-12. Alberta’s statute setting limitation periods for civil claims. Breach of a non-disclosure agreement is generally subject to the two-year limitation period from the date the claimant knew or ought to have known of the breach, which makes timely enforcement of a non-disclosure agreement an important consideration.
Employment Standards Code, RSA 2000, c E-9. Alberta’s primary employment legislation. The Employment Standards Code and related common law principles shape the enforceability of non-disclosure agreements with employees, particularly where confidentiality obligations overlap with restrictive covenants and post-employment restrictions.
Overly broad or vague definitions of confidential information. One of the most common drafting issues in a non-disclosure agreement is a definition of confidential information that is either so broad it captures public knowledge or so vague that it is difficult to enforce. A workable non-disclosure agreement typically defines confidential information by category and excludes information that is publicly available, independently developed, or already known to the receiving party.
Unreasonable durations. Non-disclosure agreements that purport to impose perpetual confidentiality may be challenged as being unreasonable. Many non-disclosure agreements adopt a fixed term, often two to five years.
Inadequate flow-down protections. A non-disclosure agreement is only as strong as its protections against onward disclosure to additional recipients. Without clear flow-down language requiring employees, contractors, advisors, and affiliates of the receiving party to be bound by equivalent confidentiality terms, confidential information can be exposed through indirect channels that the original parties may not have addressed.
Lack of consideration. A non-disclosure agreement, like any contract, generally requires consideration to be enforceable. Confidentiality obligations imposed on an existing relationship such as an existing employee, without fresh consideration, may be challenged as unenforceable, particularly where the non-disclosure agreement is introduced part-way through the relationship rather than at the outset.
Unreasonable scope of restricted information. A non-disclosure agreement that purports to restrict information already in the public domain, independently developed, or rightfully obtained from a third party may be found unenforceable to that extent. Courts generally read non-disclosure agreements with carve-outs implied where the drafting is silent, but a non-disclosure agreement that lacks standard exclusions is often more vulnerable to challenge.
When should a non-disclosure agreement be signed? A non-disclosure agreement is generally signed before any confidential information is disclosed, not after. Information shared without a non-disclosure agreement in place may lose its confidential character, and after-the-fact attempts to impose confidentiality obligations are typically weaker and more difficult to enforce.
What is the difference between a one-way and a mutual non-disclosure agreement? A one-way (or unilateral) non-disclosure agreement protects information flowing from one party to another, while a mutual non-disclosure agreement protects information flowing in both directions. A mutual non-disclosure agreement is generally appropriate where both parties expect to share confidential information.
How long should a non-disclosure agreement last? There is no fixed answer. Many commercial non-disclosure agreements run for two to five years from the date of disclosure, with longer obligations for trade secrets. The appropriate duration depends on the sensitivity of the information, the industry, and the relationship between the parties.
Do I need a non-disclosure agreement before sharing my idea with an investor? Many institutional investors decline to sign non-disclosure agreements at the pitch stage. In that situation, founders often rely on selective disclosure, redacted materials, and existing intellectual property protections, with a more detailed non-disclosure agreement signed before deeper due diligence or technical disclosures.
Are template non-disclosure agreements from the internet enforceable? A template non-disclosure agreement may be enforceable, but template language often fails to reflect the specific information being protected, the jurisdiction, the relationship between the parties, and applicable statutory carve-outs. A non-disclosure agreement that has been reviewed or drafted for the specific transaction is generally more reliable than a generic template.
Can a non-disclosure agreement protect an idea? A non-disclosure agreement can impose contractual confidentiality obligations on an idea, but ideas themselves are generally not protected by copyright, patent, or trademark law unless they meet specific statutory requirements. A non-disclosure agreement is often the primary protection available for an idea in its early stages, particularly before any intellectual property filings.
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