Non-disclosure agreement: what makes it enforceable, and what makes it paper
Most NDAs we see are signed quickly and never read. The problem is not that they are unnecessary but that they are drafted in a way that makes them hard to enforce: an over broad definition, an unreasonable term, and no way to prove the information was ever handed over. This page covers what turns an NDA into a real instrument.
“An agreed damages clause is sometimes the difference between an enforceable agreement and a statement of intent.”
Adv. Erez Sapir
When an NDA is needed
A non-disclosure agreement is needed whenever you are about to hand over information whose value comes from it not being known. The common situations:
Before a commercial negotiation. A potential buyer, partner or investor asking to see data. Here the agreement is signed before the information moves, not after.
With a supplier or contractor. A software developer, design studio or consultant exposed to your working methods and client list.
With employees. Usually as a chapter within the employment agreement rather than a separate document.
In collaborations. Where two businesses explore a joint venture and each discloses to the other. Here a mutual agreement is required, not a one sided one that protects only one party.
The simple rule: if the information loses its value the moment others know it, it justifies an agreement. If it does not, the agreement only creates friction.
What it must contain
A definition of the confidential information. The most important part, covered in the next section.
The purpose of disclosure. Why the information is being provided, and from that what may not be done with it. A narrow purpose is stronger protection than a general prohibition.
Who may see it. In practice the information will reach employees and advisers of the receiving party. The agreement should permit that expressly and make the recipient responsible for anyone exposed on their behalf.
The confidentiality period. Separate from the term of the engagement.
What happens at the end. Return or destruction of the material, including digital copies and backups.
Exceptions. Information already known, information that became public through no fault of the recipient, and information whose disclosure is compelled by an order. These exceptions do not weaken the agreement; they make it reasonable and therefore enforceable.
Remedies. Covered below.
The definition: the most common mistake
The natural instinct is to define confidential information as broadly as possible, along the lines of any information disclosed in writing or orally. That is a mistake, for two reasons.
First, a sweeping definition is hard to enforce. When everything is confidential, a court struggles to determine what exactly was breached. A focused definition listing categories, for example client list, pricing structure, source code and development plans, is far stronger.
Second, oral disclosure is hard to prove. The practical solution: provide that information disclosed orally will be treated as confidential if confirmed in writing within a few days, and keep a simple log of what was handed over and when.
The recommendation: attach a schedule listing the categories of information. A schedule is easy to update, and at the same time it is the best evidence that the parties knew what was being protected.
The confidentiality period
Two periods are constantly confused: the term of the engagement, meaning how long the parties work together, and the confidentiality period, meaning how long the duty lasts. The second continues after the first, and that is the whole point.
Too short a period leaves the information exposed precisely while it is still valuable. An unlimited period sounds strong but invites the argument that the restriction is unreasonable. The practical rule: match the period to the real life of the information. Pricing for one season dates quickly, while source code or a formula holds value for years.
A solution that usually works: a defined period for most information, and a longer or unlimited period for a narrow category of genuine trade secrets set out in a schedule.
Proving a breach
This is the weak link in almost every NDA. Even with an excellent agreement, a claimant must show three things: that the information was provided, that it was confidential, and that the other side used it improperly.
Three cheap steps that strengthen all three, worth taking from day one:
Document the handover. Send material by a route that leaves a trail, not in a conversation. A short acknowledgement by email is worth more than a clause.
Mark it. State on documents that they are confidential. It sounds formal and it works.
Disclose in stages. Do not hand over everything at the first meeting. Staged disclosure limits the damage and creates a documented sequence.
Remedies and liquidated damages
The most meaningful remedy in a confidentiality breach is not monetary but an injunction stopping the use. So the agreement should say expressly that a breach justifies interim relief, and preferably also record that damage of this kind is difficult to quantify.
Liquidated damages are an effective tool, provided they are measured. An amount proportionate to the transaction saves the stage of proving loss, which is the hard part. An absurd amount invites the court to intervene and reduce it, leaving you with nothing.
Two further components that earn their place: a defined jurisdiction, and in cross border deals the governing law, and an undertaking to cooperate in locating material where a leak is suspected.
What an NDA does not do
Three limitations worth knowing, because they are a source of disappointment.
It does not prevent the use of general knowledge. A person who acquired a professional skill at work may keep using it. The protection covers defined information, not experience.
It is not a substitute for a non compete. These are two different mechanisms. Confidentiality prohibits use of information; non competition restricts activity. If you wanted the second, it must be drafted separately and carefully.
It does not confer ownership of intellectual property. If a contractor developed code for you, an NDA does not transfer the rights. An express assignment clause is required. See due diligence, where this gap usually surfaces.
Legal support
We draft NDAs matched to what is actually being disclosed, and review agreements presented to you for signature. In a review we look at three things first: whether the definition is enforceable, whether the period is reasonable, and who exactly is bound by it.
To reach us: 02-5953322 in Jerusalem, 03-3030430 in Tel Aviv, WhatsApp 050-4411343.
Frequently asked questions about non-disclosure agreements
When is an NDA needed?
Does a broad definition of confidential information protect me better?
How long should confidentiality last?
What is the main remedy for a breach?
Does an NDA stop an employee working for a competitor?
Does an NDA transfer ownership of code developed for me?
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Send us the agreement or tell us what is being disclosed. We will check whether the definition is enforceable, whether the period is reasonable, and who is bound.