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What is the maximum term of an NDA if it is not mentioned in the contract?

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When signing a non-disclosure agreement, the benefits of including a term clause (i.e., end of the contractual obligations) depend on whether you are more likely to be disclosing or receiving confidential information.

If you are the disclosing party, you want to ensure that your confidential information is kept confidential and there are no potential unauthorized disclosures. This means you want to protect the confidentiality of that information for as long as possible.

If you are the receiving party, you want to limit your obligations in the agreement, which includes what information you have to keep confidential and for how long you have to keep it confidential.

 

You can view and customize a Confidentiality Agreement on Clausehound:

NDA

 

Term of a Confidentiality Agreement

If a term clause is not included in an NDA, the parties can imply that the NDA will be in effect indefinitely. An NDA with no term clause is more common in an agreement where an ongoing relationship is taking place.

Assuming that the NDA contains a termination clause, once a party gives notice to terminate the contract, all of the obligations under the contract will terminate on the termination date unless the NDA includes a survival clause. However, circumstances may vary depending on whether the information is considered a trade secret, where the Ontario Court of Appeal held that disclosing a company’s trade secrets can be considered a restraint on trade.  

Note that after the termination date, the receiving party will no longer be under an obligation of confidentiality for information received after the termination date. This will be true whether or not the confidentiality clause continues to apply to confidential information received before the termination date.

 

Survival Clause

For an example of a contract with a survival clause, follow the image below!

Survival

The exception to all the obligations being terminated on the termination date is where a survival clause has been included. A survival clause explicitly states which obligations will ‘survive’ the life of the agreement. Clauses that survive an agreement usually include the confidentiality clause.

Although a confidentiality clause can ‘survive’ the term of the agreement, the standard term of survival for a confidentiality clause is generally  two to four years after the termination date. Companies that are receiving confidential information will be reluctant to agree to an unlimited term for the confidentiality clause.

To see a standard non-disclosure agreements, visit our Small Business Law Library!

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Survival Gear: Making the Confidentiality Clause a ‘Survivor’ of the Employment Contract

The Jungle

For most of us, the toughest ‘jungle’ we will have to learn to survive in is the world of employment. Most of us will not win a $1 million prize by being crowned the Sole Survivor on the popular show Survivor – we will have to earn our $1 million day by day at work. And unlike the rules on the TV show, it takes more than personality conflicts to snuff out our membership in the workplace ‘tribe’ in which we find ourselves. This is demonstrated in the following case, Gillespie v. 1200333 Alberta Ltd. [2012] ABQB 105, cited at http://www.canlii.org/en/ab/abqb/doc/2012/2012abqb105/2012abqb105.html.

 

The business world’s toughest challenge is to survive each day.

A few years ago, an employee was fired because of ‘personality conflicts’. She cleared out her desk and left. Later it was discovered she had taken home some papers which contained confidential personal information of some of the employer’s clients. This violated the confidentiality agreement.

She sued the employer for wrongful dismissal and claimed 4 months’ wages in lieu of notice. The employer argued in defence that she had breached the confidentiality agreement and so her termination was justified. On appeal the court held that at the moment she was fired they had no cause to fire her because she had not yet breached the confidentiality agreement. She was awarded the 4 months’ wages.

 

The Challenge

Why didn’t the employer claim for a breach of the confidentiality agreement? Why did the employer rely only on defending the wrongful dismissal suit?

When an employee is fired, the employment contract ends immediately. This means that if the confidentiality agreement was contained in the employment contract, it would no longer bind the employee as soon as she/he is fired. So in this situation, as soon as she was fired, and then cleared out her desk, she may no longer have been bound by the confidentiality agreement.

This is troublesome for employers, who need protection for confidential information for at least three reasons: to comply with privacy protection legislation; to protect their own confidential information; to comply with agreements with their clients to protect the clients’ confidential information.

What is an employer to do?

 

The Survival Gear

Can an employer make the confidentiality obligations ‘survive’ the employment contract? Yes!

The legal survivor gear is called a ‘survival clause’, and typically says something like this: “Notwithstanding any other provision of this Agreement, the Confidentiality Clause shall survive the termination of this Agreement.”

While some survival clauses are more detailed, and some contain definite periods of time for which the named obligations will survive the termination of the agreement, the key feature is that the survival clause clearly identifies which obligations are to survive.

Why didn’t this employment contract contain a survival clause? In the rush of a busy practice, it is easy to overlook what most people call ‘boilerplate’, and to underestimate the significance of one missing clause.

You can check out our gap highlighting tool as a way to minimize the risk of missing important ‘little’ clauses like the survival clause.

 

Do you have the legal survival gear you need to make it to the top?

 

In reality, the survival clause is not ‘just boilerplate’ – but like the immunity necklace on the show, Survivor, it makes all the difference. If our employer had included a survival clause in the employment agreement, and this survival clause had clearly covered the confidentiality obligations, this ‘episode’ might have had a different ending.

 

Takeaways:

  • the termination of an employee cannot be justified by events that happen after the employee is fired
  • confidentiality obligations will end when an employee is fired unless the employment contract contains a survival clause
  • the survival clause must clearly identify the obligations which are to survive the termination of the contract

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Like all Contracts, Non-competes Require Consideration to be Enforceable

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Read full article here.

The consideration given for non-competition agreements is often access to confidential information.

This article warns that employers should be careful about having incumbent employees sign off on noncompetes without offering additional consideration to support the agreement. If an employee leaves the company, competes with the company, and is then sued to enforce the noncompete, he may argue that he received no new confidential information so there was no valid “consideration” for the noncompete.

Employers should ensure the employee receives monetary compensation, or some other form of consideration for the noncompete in the termination agreement, and that the employee has acknowledged receipt of it.

Read full article here.

 

Take away:

  • A non-compete agreement will not be enforceable without valid consideration.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Subcontractor Limits on Bringing Claims Against the Government

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Read full article here.

This article outlines that the general rule is that a “subcontractor cannot bring a claim against the government unless it has contractual privity with the government or is an intentional third-party beneficiary of an agreement. However, subcontractors can typically bring claims against the government if a prime contractor brings the suit on behalf of the subcontractor as a pass-through or sponsored claim”.

The article discuses a United States case which granted the government’s motion to dismiss for lack of subject matter jurisdiction because the subcontractor lacked privity of contract with the government.

Read full article here.

 

Take away:

  • Subcontractors should be aware of legislation governing third party suits against the government, and ensure that their contract with the prime contractor requires it to initiate litigation/arbitration on behalf of the subcontractor.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

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Legal Tips and Tricks: Boilerplate Provisions Of Your Agreement

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Don’t ignore the boilerplate provisions of your agreements.  Although the language appears the same every time you read these clauses, subtle differences can and will make a difference in interpreting your commercial agreement or acquisition transaction documents.

By the time you get to the final page of your commercial agreements your eyes will have started to glaze over.  Words such as “amendment”, “assignment”, “waiver”, “severability”, and “arbitration” all seem vaguely familiar, but if you are reading someone else’s contract, make sure you read these carefully.  Clauses in this section of a contract are often considered to be “boilerplate” or standard, often repeated language.  Be cautious when reading this section of your contracts as the subtle nuances will work to your favour or against you.  Once you understand the intent of the clause, you can read a boilerplate clause more rapidly and with greater clarity.  It is also helpful if you or your counsel have a checklist of what is considered standard in your contracts, to compare against agreements that are sent to you.

Here is some helpful information on the “General Matters” clauses to help you to round out your agreements, and to make sure you’re aware of the risks and protections that are built in.

Amendment:  necessary to ensure that you are not inadvertently changing the agreement every time you have a discussion about it.  Amend in writing, signed by all parties.

Assignment:   important in the context of mergers and acquisitions or reorganization of your business, an individual or company should be able to assign an agreement to a holding company owed by them.  As well, the contract should be assignable to an acquiring company (who may see the contract as part of the assets they are acquiring).  Language can be included that allows a rejection of the assignment if the acquiring company is in direct competition with either party.  In many contracts only one party is permitted to assign the agreement (for example, an employee would not have a right of assignment as it is their personal service that is sought).

Enurement:  coupled with the assignment clause, this clause, if properly drafted, will extend the benefits of the contracts to successors or assigns.   In the case of a successor – this ensures that your estate has the right to benefit from an active contract.  In the case of an assign, this would extend the benefit to an acquiring or merging third party to the contract.

Waiver:  this clause preserves your rights in the event that you have been relaxed about enforcing your contract and your counterparty tries to assert that the contract has therefore become more relaxed as a result.  The “doctrine of waiver” is the legal concept that continuing or repeating waiver of a certain right can be construed as an ‘intentional relinquishment of a known right.’  This doctrine is to be avoided with a no waiver clause, so that your negotiated rights are not diminished because you are “being nice”.  Make sure to include language that requires a waiver to be in writing.

Costs:  if there is an ongoing expense (legal or otherwise) that could result from negotiation of an agreement, a costs clause should be included to clarify which party is paying for the ongoing legal expense.  The costs clause is not to be confused with the “expenses” clause – which deals with ongoing expenses that are incurred in performance of an agreement.  An expenses clause is usually found in an employment or consulting agreement, whereas a costs clause might be found in an M&A agreement.  In the context of M&A, a break fee is sometimes included to compensate a party for the legal process, once the transaction reaches a certain stage (usually due diligence).

Dispute resolution: consider whether you would rather deal with a dispute via negotiation, arbitration or litigation (or by climbing a ladder past each of these).   Many parties prefer to end the dispute in final and binding arbitration, as the costs and length of time taken to litigate can be ugly.

Notice:  when a party to an agreement is actively trying to terminate a contract, they will often rely on the method and location of delivering notice clause to take the position that the contract was not (for example) properly renewed.  Tricky counterparties could take the position that notice in person or via email is not the required method for notice under contract, and therefore, that the renewal period has expired.  Keep an eye out for this especially in lease renewals or the renewal of an exclusive negotiations period in the context of an M&A transaction.

Severability:  a contracting party may place clauses in a contract that create a period of non-competition or an interest rate for non-payment that might in the future violate a changing law.  This clause is intended to sever an offending provision and to flag to the court that the contracting party had intended to be reasonable, to avoid the court from setting aside the entire agreement as “unconscionable.”

Headings:  a well-organized contract contains plenty of headings at the beginning of each section (similar to in this article) that will allow a reader to navigate a contract quickly.  In contrast, a clever counterparty may remove the headings to make the contract less readable if they are looking to discourage negotiation.  Some law firms/companies will hold on file an internal and external version of a contract, with only the internal version containing headings.   A reasonable lawyer cannot help but be annoyed by this, as it takes away from the basic principle of consensus ad idem or “meeting of the minds”.  The headings may not capture the meaning of the contract and this clause will flag that issue to the readers so that they do not rely on summary text.

Entire Agreement:  parties may be relying on internet brochures, or advertisements or information outside of the contract, to come to an agreement.  The entire agreement clause will specify that all outside information is superceded by the contract.  Understanding this, the contracting party should carefully read the contract before signing and either strike out items that were not part of the deal, or add any additional items in, and ask the counterparty to initial the changes.  This is a good rule for everyday life contracts (rental car agreements, apartment rental agreements, insurance agreements) as well, in which standard form contracts may not capture some of the pre-contract discussions.  An experienced counterparty will not have a problem with making those changes.

Counterparts:  not everyone is always able to be in the same room at the same time to sign an agreement.  This clause specifies that parties can sign separately and that scanned-in or faxed-in signatures, once collected, form the agreement.  A careful person will ask that every page of the agreement be initialled and that the entire agreement be scanned in and sent together.

These are but a few of the commonly used clauses that are found in the General Matters section of most contracts.  Check out www.clausehound.com – a free source for legal language (which I am a contributor to).  Bookmark here for a list of generally used clauses with sample language provided, and do a quick double-check before signing your contracts to see if you have missed any standard clauses.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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