Non-Disclosure Agreement (NDA)

An NDA is a contract between a discloser, who shares information, and a recipient, who promises to protect it. It does two things: it restricts disclosure to others, and it restricts the recipient's own use of the information to a stated purpose. Most NDAs contain the same core terms:

• Definition of confidential information. What is protected, whether marked or not.
• Permitted purpose. For example, evaluating a proposed transaction or performing a contract.
• Standard exclusions. Information that is already public, already known to the recipient, independently developed, or received lawfully from a third party.
• Compelled disclosure. What the recipient may do if a court or regulator requires disclosure, usually with notice to the discloser.
• Term and survival. How long the obligations last.
• Return or destruction. What happens to the information when the relationship ends.

An NDA does not transfer ownership of anything. A contractor who signs one still owns the code or designs they create unless there is a written IP assignment agreement. Lamba Law's NDA template covers the standard drafting.

Yes, on ordinary contract principles. There must be an agreement, consideration and terms certain enough to enforce. Three practical points decide most disputes.

Consideration at the right time. An NDA signed before a deal or engagement is supported by the access to information it unlocks. An employee asked to sign one partway through employment should receive something new in exchange, or the agreement may not bind them.

A workable definition. A clause protecting "all information of any kind" is hard to enforce, because it sweeps in public and trivial material. A definition tied to identifiable categories, such as pricing, customer lists, source code and supplier terms, is far easier to prove.

No disguised non-compete. Ontario's Employment Standards Act, 2000 has prohibited most employee non-compete agreements since October 25, 2021. A confidentiality clause that only restricts use and disclosure does not, on its face, fit that definition of a non-compete. A clause so broad that it stops someone from working in their field is at risk of being treated as a restraint of trade. See non-compete agreements.

Some limits are statutory. Under section 121.6 of Ontario's Securities Act, a provision in any agreement, expressly including a confidentiality agreement, is void to the extent it stops an employee, officer, director or individual contractor from giving the Ontario Securities Commission, a recognized self-regulatory organization or a law enforcement agency information about conduct they reasonably believe breaches Ontario securities law.

The contract is not the only protection. Canadian courts recognize an equitable claim for breach of confidence where information with the necessary quality of confidence is communicated in confidence and then misused to the discloser's detriment, which can apply even without a signed NDA. Where the information is a trade secret, which stays protected only while it stays secret, a signed NDA is also evidence that the owner took secrecy seriously.

There are two clocks. The term is the period during which information is exchanged. The confidentiality period is how long the duty to protect it survives afterwards.

Common market practice is a confidentiality period of two to five years for ordinary commercial information, and often one to three years for an NDA signed to evaluate a business purchase. Information that qualifies as a trade secret is usually protected for as long as it remains secret, which can be indefinite. A fixed period for ordinary information, with a longer one for trade secrets, is easier to defend than a blanket perpetual obligation.

The confidentiality period is not the time allowed to sue. A claim for breach must still be started within the limitation period, which under Ontario's Limitations Act, 2002 is generally two years from the day the claim was discovered.

Injunction. The most useful remedy is usually a court order stopping further use or disclosure. To get an interim order quickly, the discloser generally has to show a serious issue to be tried, harm that money cannot fix, and that the balance of convenience favours the order. Delay weakens the case, so act as soon as a breach is discovered.

Damages. Compensation for the loss caused, such as lost contracts or customers. Damages require proof of the loss, which is often the hardest part of an NDA case.

Other equitable relief. In a breach of confidence claim, a court may order the recipient to account for profits made from misusing the information.

Agreed sums. Some NDAs fix a payment for each breach. A court will enforce a genuine pre-estimate of loss but not a penalty; see liquidated damages clauses.

Evidence matters more than wording. Keep data room access logs, mark sensitive documents, limit who receives them and require a written certificate of return or destruction at the end.

In a business sale, the NDA is usually the first document signed. A business broker typically requires one before a buyer sees financial details, and it governs everything shared through the letter of intent and due diligence. A deal NDA needs terms an ordinary NDA lacks:

• Representatives. Lenders, advisers and investors can see the information, but the buyer is responsible if they misuse it.
• Non-solicitation and no-contact. No approaching the seller's employees, customers, suppliers or landlord without consent, often for 12 to 24 months.
• Clean team rules. If the buyer is a competitor, pricing and customer data may go only to a small group outside the sales function.
• No reliance and no obligation. The seller makes no promise that the information is complete, and neither side must proceed.
• Personal information. Under section 7.2 of the federal Personal Information Protection and Electronic Documents Act (PIPEDA), parties to a prospective business transaction may share necessary personal information without consent only if the recipient agrees to use it solely for the transaction, protect it with appropriate safeguards and return or destroy it if the deal does not proceed.

Our business agreements guide explains where the NDA fits among the other contracts a company needs.

Baljit Dhillon owns a Brampton HVAC company with 1,100 maintenance contracts. A competitor, owned by Megan O'Connor, signs an NDA before receiving the customer list, pricing and technician payroll. The NDA has a two-year confidentiality period, bars soliciting the seller's employees for 12 months, and permits general job advertising.

The deal collapses after due diligence. Three months later, two of Baljit's technicians join Megan's company after answering a public job posting, and about 40 of his maintenance customers receive discounted offers that match their renewal dates.

Baljit's lawyer reviews the facts. The hires fall within the job-advertising exception, so there is no breach there. The customer mailing is different: renewal dates came only from the data room, and the access log shows Megan's sales manager downloaded the list. Baljit sends a demand and prepares an injunction motion. Megan's company gives written undertakings to stop contacting the 40 customers, certifies destruction of the data, and pays $55,000 to settle the claim. A customer no-contact term and a clean team would likely have prevented the dispute.