By: Josh Wueller
Whether they call it a Confidentiality Agreement or a Non-Disclosure Agreement (NDA), many New Yorkers begin their business deals with a contract governing the sensitive information that they might exchange with one another. Employers hiring or firing employees, tech companies with trade secrets and parties exploring a potential business relationship all routinely find themselves in need of a well-drafted Non-Disclosure Agreement.
Although New York NDAs are often only a page or two in length, they can have serious legal implications for both parties to the deal. Before you or your business sign a Confidentiality Agreement in New York, make sure to ask yourself these three questions.
1) What is “Confidential Information”?
Your Non-Disclosure Agreement should define with specificity the types of information that should be kept confidential. This is especially true if you or your company are obligated to protect any disclosed information. Avoid committing to an overreaching definition of “Confidential Information” that could create an unreasonable burden of secrecy, or might even complicate your future business prospects.
If the exchange of Confidential Information under your New York NDA is only one-way (or unilateral), be sure to make that clear. Consider adding a provision acknowledging that (i) you don’t want any of the other party’s Confidential Information, and (ii) they aren’t going to give you any.
2) What are the time limits?
Before signing a Non-Disclosure Agreement in New York, make sure that all of your obligations regarding confidentiality have clear time limits. Two important timelines to look out for are:
- The period for disclosure: How long the parties intend to exchange Confidential Information; and
- The period for confidentiality: How long the parties have to keep disclosed Confidential Information a secret.
The longer the period for disclosure, the more Confidential Information the disclosing party can generate. Likewise, the longer the period for confidentiality, the more time that the receiving party will need to keep tabs on the information that’s exchanged. Extending either time limit can increase the administrative burden on the recipient.
New York businesses with trade secrets should be especially mindful of the time limits in their NDAs. In several cases, courts have found that trade secrets disclosed under a Confidentiality Agreement expire when the period for confidentiality ends. To combat this risk, trade secret owners should include two periods for confidentiality in their NDAs: (i) one of unlimited duration for any disclosed trade secrets, and (ii) a separate, specified time limit for all other Confidential Information exchanged under the agreement.
3) What happens if someone breaks an NDA?
When a New York Confidentiality Agreement is breached, the discloser may have claims against the offending party for breach of contract, misappropriation of trade secrets, and breach of fiduciary duty, among others. A separate cause of action for tortious interference of contract might be appropriate if any third party played a part in the breach. As a general rule, however, the State of New York is very protective of parties’ future employment or business opportunities.
In the event of a leak (or potential leak), courts have hesitated to force the offender to keep quiet or leave their new jobsite unless the Confidential Information in question is also a trade secret. Sometimes, money damages are the only alternative.
Because it can be very difficult to assign a dollar value to the harm that an employee, client or business partner would cause by spilling the beans, you might consider including a liquidated damages clause in your New York Non-Disclosure Agreement. Such a provision should provide a reasonable estimate of the injury that you or your business would face in the event of a breach.
Don’t be fooled by the short stature of an NDA. Make sure that your New York Confidentiality Agreement is well-drafted in scope, subject matter and duration.
Associate Pending Admission