By Julia Di Vito
Non-disclosure agreements (“NDA”), or confidentiality agreements, are useful in a variety of contexts, including between teaming partners, contractors and subcontractors, as well as employers and employees.
No matter the context, the duration of an NDA is a crucial part of the agreement, yet often it is determined by a boilerplate provision that is not tailored to the circumstances of the agreement.
If you take a look at your current NDAs, it is likely that they either are for an indefinite duration, probably in the employment context, or for a period of three years, probably in a subcontract or teaming agreement. However, the duration of a NDA should not be a one-size-fits-all provision, and it deserves critical consideration when the agreement is drafted.
The first consideration is whether the NDA is part of an agreement between an employer and an employee, or between two business entities. If the NDA is the former, the duration of the NDA should be tailored to protect only the employer’s legitimate business interests, as many states consider all parts of an employment agreement, including an NDA, to be a restraint of trade. If the NDA is the latter, the NDA may be enforceable for longer than one in an employment agreement, as many states do not consider NDAs outside of the employment context to constitute restraints on trade. However, some states consider all NDAs to be a restraint on trade, no matter the parties to the agreement, and thus, the term of an NDA in those states may be scrutinized as a non-competition or non-solicitation agreement would be.
The next consideration is the information covered by the NDA. If the information is a “trade secret” as defined by applicable state law, it is likely that the information can be protected indefinitely, or as long as the information would qualify as a “trade secret.” However, if the information is merely confidential or proprietary information, such as client lists or pricing information, some states will not enforce a NDA protecting that information indefinitely. Those states reason that if the information will be so out of date in a few years that it could not benefit a competitor, then it does not need to be protected for more than a few years. Some states may enforce an NDA with no time limit only with respect to trade secrets but not confidential information; other states may find an NDA totally unenforceable if it has no time limit but seeks to protect confidential information.
Additionally, a company should be consistent among the NDAs it enters into, as a discrepancy among the duration of NDAs could imply that the confidential information should be protected only for the shorter of the time periods. Finally, as noted above, the rules of enforceability vary significantly by state
It is best to consider the law of the state in which the NDA will be enforced before entering into an NDA. Accordingly, drafting every NDA requires careful consideration of the parties involved, the information to be protected, and the state in which the agreement will be enforced. One size clearly does not fit all.
About the Author: Julia Di Vito practices in the areas of government contracts, litigation, employment, and labor. She may be reached at [email protected].