Every business has its own set of ideas and strategies of doing work which may be in the form of inventions, innovations, business models, trade secrets, business acquisition model, communication model, patents etc
These ideas and strategies needs to be shared with Employees, Business Associates, Consultants etc. for the growth and success of the business. However, it may not be necessary that the receiver treat them as confidential. It is often witnessed that the confidential information, which should only confined to the business and the other party, if revealed, whether formally or informally, to the Public/ the Competitors / any other third person it may extremely affect the business.
Therefore, it is very much important for the management or the promoter to ensure that to whomsoever it shares its confidential information should not disclose the same to any other person without their permission. This can be done by entering into a nondisclosure agreement with them so that the operations of the Company can be carried out in smooth manner and everything will be hunky-dory.
Meaning of Non Disclosure Agreement
Non disclosure agreement(NDA) is entered into between the Employer (the owner of the Confidential Information) and the Employee (the receiver of the Confidential Information) with respect to the protection of confidential information/ documents, received by employee during the tenure of his/ her employment with the Company, from sharing without prior permission of Employer. A NDA is a legal contract between two parties that outline the Confidential Information shared by the Parties but restrict the access to the other third party. For a business to grow, it is utmost important to keep certain information intact within its organisation. Therefore employer needs to ensure that the confidential information is not passed on to any person without his permission, which may otherwise create hindrance in the growth and success of its business.
Important terms under Non-Disclosure Agreement
As the information are confidential in nature, it is utmost important to draft such NDA which is much more precise and strictly confidential in nature. A good Confidentiality Agreement shall contain following information:
1. Define Confidential Information: It is very important that the Definition of Confidential Information must be specified very clearly as only this will decide that what would be considered as confidential document/ information. The information to be considered as confidential depends solely upon the nature of the Business.
2. Condition for non disclosure: The Employer should specifically mention the situation under which no information shall be shared to other person without his/ her prior permission.
3. Exceptions for non disclosure: Sometime situation occurs that it become very essential for the employees to disclose the information, in order to face such situation, it is always suggested that there must be some exemption from Non sharing like information :
is, at the time of disclosure, publicly known and made generally available in the public domain;
becomes, at a date later than the time of disclosure, known to the trade or the public otherwise than a wrongful act or negligence or breach of this Agreement of or by the Receiving Party;
is known or possessed by Receiving Party free from any obligation of confidentiality, as evidenced by Receiving Party’s written records immediately before receipt of the Confidential Information from Disclosing Party;
is disclosed to Receiving Party in good faith by a third party and the Receiving Party was not aware that the third party had a duty of confidentiality to Disclosing party in respect of the information; or
is independently developed by Receiving Party without use of or reference to Disclosing Party’s Confidential Information, provided there must be some adequate documentation to confirm such independently development.
The burden of proof shall be on Receiving Party to establish the existence of facts giving rise by clear and convincing evidence that any of the foregoing exceptions apply and also this needs to be secured that even in above cases, information would be shared on “Need to Know” basis and with prior written intimation to the Employer.
4. Duration: The duration for which the Agreement shall remain valid. The duration clause underlines the timeline through which the liability in case of breach of terms and condition of the NDA Agreement is undermined.
5. Non Compete clause: It is very much important to insert non compete clause. This helps the Employer to impose restriction on the Employee to enter into a competitive business immediately after resigning from the employment services.
6. Handover of Confidential Information: Any confidential information accessed by the Employee during his tenure is to be handed over in the same manner to the Employer. The Employer shall be the sole owner of the Confidential Information.
7. Assignment of Intellectual Property Right: It is pertinent to mention that if some Intellectual property right has been created during the tenure of employment of any employee due to the work done by that employee, then it shall be the sole property of the Company, and Employee shall take all steps to give or assign such right to the employer.
8. Customer and Vendor Confidentiality: The Employee recognises that it is essential to the Company’s success that all customer and vendor information be deemed to be confidential and be properly treated as a confidential trade secret. Therefore, the Employee agrees not to use or disclose any such customer or vendor information except as may be necessary in the normal conduct of the Company’s business for the specific customer or vendor, and after the end of his/her employment with the Company, he/she will return all such materials to the Company.
9. Injunctive Relief and Indemnification: The Employee understands and agrees that monetary damages will not be sufficient to avoid or compensate for the unauthorized use or disclosure of any of the Company’s Confidential Information. Accordingly, the Employee understands and agrees that in the event of any breach or threatened breach of the NDA contract, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting a bond or other security, to equitable relief, including injunctive relief and specific performance. The Employee hereby agrees to indemnify and hold harmless the Company from any damage, loss, cost or liability (including legal and expert witnesses’ fees and the cost of enforcing this indemnity) arising out of or resulting from any unauthorized use or disclosure by the Employee of the Confidential Information.
10. Continuing Obligation: The obligations of the Employee under employee confidentiality Agreement shall be continuing until the Confidential Information disclosed to the Employee is no longer considered confidential by the Company.
11. Indemnity Clause: according to Section 124 of the Indian Contract Act, 1872 Indemnity means “A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.
Under the Confidentiality Agreement with the Employee, Indemnity clause would strive to protect the Employer from the wrong doing of other Employee under the Agreement. In case of breach of duty on the part of Employee, then he/ she had to indemnify the Employer and make good the loss suffered.
12. Notice of Breach: In case during the period of employment, the Employee disclose any confidential information or he/ she come to know about the event of breach of term, then Employee must notify to the Employer so that remedial action can be taken.
13. Severability clause: In case of any clause of the agreement becomes inoperative, for time being in force, then only the clause repugnant shall be treated as inoperative and not the entire agreement.
14. Termination: Terms on which the agreement stands to be terminated shall be mentioned specifically in the employee non disclosure Agreement. Few Instance for the same are :
- on completion of service
- on expiry of the term
- continuous delay in completing the work etc
- misuse of information and records
- on breach of terms of the confidential disclosure Agreement
Notice Period which needs to be given need to be mentioned.
15. Arbitration: In case of any dispute, the Parties can mutually agree to settle the dispute through arbitration also and same shall be carried out as per the provision of Arbitration and Conciliation Act, 1996 and amendment therein from time to time.
16. Jurisdiction: The NDA should define the jurisdiction of the Court which can be approached by the Parties to the NDA in case of any dispute arose.
Aforesaid list of clauses are not exhaustive one but inclusive one, same can be modified and additions can be made depending upon nature of business and type of employees being hired.