Table of Contents
A confidentiality agreement is an essential legal document for most businesses. During the startup of your business, you may be speaking to a large number of people about your business ideas, plans and what makes your business unique. It is important to understand your rights and responsibilities under a confidentiality agreement and how or when you can terminate or get out of the agreement. In business, many people sign confidentiality agreements. However, the obligations under these agreements can be very long-lasting. Therefore, it is important to understand what it is you are signing. This article will explain what a confidentiality agreement is and how you can get out of one.
What is a Confidentiality Agreement?
Confidentiality agreements are also known as non-disclosure agreements (NDAs). They are an agreement between two parties, entered into in circumstances where either or both will disclose confidential information during the course of their relationship.
To craft a well-drafted non-disclosure agreement, you should specify:
- what information is considered confidential;
- that this information cannot be disclosed; and
- the consequences for breaching the agreement.
Commonly, NDAs protect the following information:
- business plans, methods and ideas;
- intellectual property;
- trade secrets;
- financial information;
- marketing and capital raising plans; and
- customer and supplier lists.
Mutual vs Unilateral
You can draft NDAs as mutual agreements, which means both parties will protect each other’s confidential information if disclosed. However, you may also draft an NDA to be one-sided. Therefore, you should check that the NDA you are signing covers your business as well, if you will be disclosing confidential information.
Continue reading this article below the formCommon NDA Clauses
NDAs will include a range of clauses detailing:
- the obligations and rights of each party;
- what information is defined as confidential; and
- what the consequences of a party breaching their obligations under the agreement are.
We explore further below, important clauses you will find in an NDA.
Obligations of the Receiver of Information
This clause will detail the receiving party’s obligations regarding:
- keeping the information confidential;
- for how long they need to keep this information confidential; and
- under what circumstances they can disclose it.
Confidential Information Definition
First, define what information you consider confidential in your NDA. Additionally, the disclosing party will want to ensure this clause is very broad to capture all the information that a party may disclose to the receiver. Broad definition clauses may limit the business‘ ability to use the information disclosed to benefit the discloser’s business plans. For this reason, it is essential to ensure the definition of confidential information is accurate for the purposes of your business interactions.
Purpose of Confidentiality
The other party will likely have set out a specific purpose for disclosing the confidential information to the receiver. Therefore, this clause should not be too broad or narrow, as it may prevent you from being able to use the confidential information for the business’s needs.
Return of Information
NDAs may include a clause stating that the receiving party needs to return or destroy the confidential information at the end of the contractual relationship. In addition, the NDA should contain a clause stipulating exactly how and when this should occur.
Getting Out of a Confidentiality Agreement
Term or Duration
Most NDAs will have an end date when the contract expires, and both parties are no longer in a contractual relationship. Although the contract will expire on this date, there may be another term in the contract that covers the expectation for how long confidentiality obligations are to apply, even after the NDA has ended. Obligations to keep the information confidential usually extend far past the date the contract ends. There could be a particular time frame, for example for five years after termination or expiry, and in some cases, it can be a lifelong perpetual obligation.
Termination
Like any other contractual relationship, agreements can come to an early end. In the same way, a party that has signed an NDA may decide that they want to terminate the agreement before the agreed end date or expiry date. A termination clause in your NDA should specify how and when a party can terminate the contract early. In some cases, the NDA may not allow for early termination. Even if parties terminate early, there will still be continuing obligations as mentioned above.
The termination clause should specify:
- how you should communicate the intention to terminate to the other party (for example, you need to do so in writing);
- if you require any notice period before termination takes place (for example, 30 days’ notice); and
- what happens after termination (for example, the return or destruction of information).
Return or Destruction of Information
Even if an NDA has expired or been terminated, you still have certain continuing obligations. One of these obligations could be the return of confidential information. This clause will state whether the recipient needs to return or destroy the confidential information (often both) and in what time frame.
Furthermore, it will cover whether the party requires it immediately upon termination or expiry, or if there is an extended time period to do so. It is important to understand your obligations to destroy information, data or documents that may be confidential information under the NDA. This is because it can be a costly and time-consuming process. Therefore, you should understand and plan for this before entering into an NDA to avoid a surprise at the expiry of the agreement.
Additional Examples – Continuing Obligations following the Expiry or Termination of an NDA
Common examples of these further obligations include:
- Confidentiality clause: You might need to keep the information confidential for an additional period after the initial agreement ends. For instance, the NDA may require you to maintain confidentiality for another 3 years after the initial term expires;
- Ongoing communication: If any issues or breaches arise related to the NDA, you will need to inform the other party, even after the agreement has ended;
- Limitations on use of information: The NDA might restrict you to using the confidential information only for specific purposes, and these restrictions could persist beyond the NDA period;
- Non-compete clause: You might be prohibited from working for a competitor or starting a competing business for a set period after the NDA concludes;
- Non-solicitation clause: You might not be allowed to hire employees from the other party or engage their clients for a designated period. This provides the other party with protection and stability for their business, even after the NDA formally ends;
- Non-disparagement: You might not be allowed to make negative statements about the other party, their products, or their services, even after the NDA expires; and
- Intellectual property rights: If any intellectual property was shared or created during the NDA period, the agreement might outline who owns it and how it can be used after the NDA has expired.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
You may be able to get out of an NDA in the following ways:
- a termination clause, allowing you to ‘get out of an NDA early’; or
- expiry of the contract term.
However, it is important to understand that your obligation to keep that information confidential could continue for many years after the expiry or termination of the contract.
If you need assistance with drafting or reviewing an NDA or how you can get out of an NDA, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
It is an agreement between two parties, entered into in circumstances where either or both will disclose confidential information during the course of their relationship.
One way to get out of a confidentiality agreement is when the contract term expires. Another way is if the contract is terminated (in accordance with the termination clause). However, remember that your obligation to keep that information confidential could continue for many years after the expiry or termination of the contract.
We appreciate your feedback – your submission has been successfully received.
