Non-Disclosure and Non-Compete Agreement

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What is

Non-Disclosure and Non-Compete Agreement

A Non-Disclosure Agreement (“NDA”), also known as a “Confidentiality Agreement”, is a legal document signed between the parties, that specifically outlines the confidential information they intend to share with each other, but wish to restrict its dissemination to third parties. Non Disclosure Agreement is one of the most popular documents that the parties execute before initiating any business/contractual relationship to protect their sensitive information from disclosure to the general public or competitors, as such disclosure could severally impact the business of the disclosing party. 

NDAs can be categorized as:

  • Unilateral NDAs: Where only one of the parties discloses confidential information to the other.
  • Bilateral NDAs: Where both the parties disclose certain confidential information to each other and such information is prohibited from any further disclosure.
  • Multilateral NDAs: Where all the parties to the agreement disclose certain confidential information to each other and restrict any further disclosure.

Keeping in mind the sensitivity of the information, businesses may require that such information is not misused by the Recipient during their association with the competitor; hence to prevent the Recipient from misusing the information for the benefit of competing for business, one may enter into a Non-Disclosure cum Non-Compete Agreement to restrict the engagement of the Recipient with such competitor. 

FAQs

1. Are NDAs binding and enforceable? Does entering into a Non-disclosure cum non-compete agreement affect the enforceability?

NDA is a valid agreement under the Indian Contract Act 1872. There have been various cases where both the Supreme Court as well High Courts have issued injunctions to prevent the disclosure of information covered under the agreement. However, the validity of the non-compete clause is determined after considering the circumstances. The courts are inclined to hold such agreements binding for their duration however, post-termination enforceability would depend on a case to cases basis. 

2. What kind of information can be protected under an NDA?

While there is no certain law that states what information is considered confidential, the following have been held to be confidential information as per Indian courts:

  • Trade Secrets
  • Client lists
  • Industrial drawings
  • Intellectual property
  • Prototype products
  • Proprietary documents
  • Manufacturing processes

3. When to sign a non-Disclosure Agreement?

There are various events or circumstances under which an NDA shall be entered into and signed. It is done to keep the information secured as per the terms of the Non-disclosure agreement which are inserted to protect the proprietary information from being misused. 

4. What is the difference between a Non-disclosure Agreement and a Non-disclosure cum non-compete agreement?

Under a Non-Disclosure Agreement, the Parties are bound not to disclose the information covered by the agreement, however, the information doesn’t need to be prohibited from being used by the recipient in competing for business. Whereas in a Non-disclosure cum non-compete agreement the recipient apart from making an unauthorized disclosure of the confidential information, is prohibited from engaging himself with any entity/individual in competition with the business/activity of the disclose, thus making it a better choice.

5. Are there any exceptions where the information covered by an NDA can be disclosed?

  • While there are no express exceptions to NDAs in law, in the following situations a person may disclose confidential information:
  • Where required by law or by a statutory authority.
  • Where the information has been disseminated into the public domain.

6. When do you need a Non-Compete Agreement?

The Non-compete Agreements have a clause that specifies the period or market during which and where the employee cannot work with a rival brand or company after his employment ends. Sometimes an organization signs non-compete agreements also with the consultants and contractors besides the employees to safeguard their interests. 

7. How long does the Non-disclosure Agreement last?

There is no such specific time limit given on the duration of the Non-Disclosure Agreement. Generally, the Non-Disclosure Agreement is seen to extend over a period of 2 to 5 years. The corporates may also enter into a Non-Terminating Non Disclosure Agreement to protect the trade secrets permanently.

But, as soon as the ‘confidential information’ covered under the NDA becomes public, the Non-Disclosure Agreement has no effect and it comes to an end.