What is a Relationship NDA?
Relationship NDAs are not your typical NDAs. A typical NDA sets forth the terms by which one or more parties agree to share confidential and proprietary information with the other(s). A clearly drafted NDA defines the terms of disclosure, confidentiality, and non-use. It often includes "Standards of Care" for safeguarding confidential and proprietary information, governing how the information can be used, and providing assurances that the information will not be misused or disclosed to third parties.
The parties’ responsibilities with respect to confidential and proprietary information are governed by the terms of the NDA. Where there is an NDA, there is an expectation and obligation not to disclose the information in the absence of an exception. A breach of an NDA is a contractual violation of an agreement.
By contrast, a Relationship NDA is not a contract. It does not deal with confidential and proprietary information developed by the parties—there is none (at least at the moment that the Relationship NDA is executed) . Rather, a Relationship NDA deals with ensuring that confidential information that is generated by the parties in the course of their relationship and joint activities will be protected and not misused or disclosed.
A Relationship NDA usually is entered into before joining together in a research project, collaborative relationship, business opportunity, or potentially new venture to ensure that the parties’ confidential information will be safeguarded. Importantly, the Relationship NDA establishes the "rules of the road" for information ownership and use, and the rules for disclosing and protecting confidential information. It can be used as a framework that will govern a joint project if and when the parties execute definitive agreements that govern the project.
The Relationship NDA often covers the entire relationship which is intended to be a private affair between the parties. Generally, the Relationship NDA specifies key business terms with respect to ownership and use, but those terms are superseded by a definitive agreement if and when it is executed.
Key Aspects of Relationship NDA
A well-drafted Relationship NDA will detail the specific terms of confidential information and how both parties will be expected to maintain that confidentiality. The following list provides some of the key elements of a Relationship NDA.
Parties. The parties are a critical element of any NDAs. The parties will be generally named as "Disclosing Party" and "Receiving Party" to cast a wide net on the obligations of the Receiving Party. It is also possible to add sub-entities of the Receiver such as employees, independent contractors and other agents who should also be required to maintain confidentiality. From a practical perspective, Listing sub-agents may make it easier to identify parties which the Disclosing Party has concerns about an agent not maintaining their obligations under the NDA.
Scope of Confidentiality. Which information is confidential? How will that information be maintained by the Receiving Party? For example, will the confidential information include details of your relationship with the disclosing party, but also information about vendors, services and other third-party information? The more information listed in the NDA, the less information one would expect to be excluded from the obligations of confidentiality.
Duration. The length of time during which the relationship NDA will remain in effect. Will the NDA remain in effect only until it is replaced or superseded by a new NDA, or will the NDA last indefinitely? The NDA should also state when it will terminate – immediately upon a specific event, or automatically after the period of effectivity has elapsed.
Exceptions to Disclosure. This section will limit which information is considered confidential. For example, confidential information can include information that:
(a) is in the public domain (except where due to breach of the Relationship NDA),
(b) is already known to the Receiving Party (through no pre-existing obligation of confidentiality),
(c) is received from a third-party source, known to be free of confidentiality obligations,
(d) is publicly disclosed with consent, and
(e) is revealed by order of a court or other administrative authority (provided that the receiving party notifies the other party so that it may seek an appropriate protective order).
This section is critical as it may enable the Receiving Party to leverage certain information to its benefit without violating the Relationship NDA.
When to Use a Relationship NDA
A Relationship Non-Disclosure Agreement (NDA), while often associated with the corporate world, is an essential tool even in a personal or professional context. Such relationships, whether it involves two parties entering into a business together or a couple intricately involved in their relationship, may require sensitive information to be shared. At times it can be in your favor to keep it within the confines of your union by way of a Relationship NDA.
In a situation where two parties are contemplating entering a business together, there is the potential for discussions of intellectual property, business plans, marketing strategies, or other proprietary information. For instance, when considering entering a partnership with a co-packer, you may need to provide proprietary information such as formulas, conditions, or even financial information in order to negotiate an agreement. Having a Relationship NDA in place protects the information from disclosure to anyone outside of your agreement with each other.
Intimate relationships also sometimes require the protection of a Relationship NDA. In this case, you may not want others to know about your relationship, at least for a certain period of time. Perhaps you or the other party is married and attempting to maintain a certain level of secrecy. In these cases, a Relationship NDA can serve the purpose of ensuring this secrecy is maintained and can be enforced should one party violate the agreement.
Finally, there are cases at work in which a Relationship NDA may be beneficial. Colleagues who have a personal involvement with each other may want to keep this out of the public eye and away from the prying eyes of their coworkers or competitors. Further, senior executives may want to use the NDA to protect sensitive information that they share with each other while maintaining confidentiality. For example, this can include compensation, stock options, and so on.
Legal Effects and Enforceability
As Relationship NDAs become more common, questions about their legal implications and enforceability are becoming more prevalent. Courts have held them to generally unenforceable for several reasons, primarily because they serve the private interests of just one party, and those interests have no correlation to a legitimate public need. And the courts, themselves, have yet to recognize the public policy reasons that justify their imposition.
The legal context for this type of agreement includes the familiar body of general contract law, that being the body of law that governs contracts in the U.S. In this context, the majority of courts disfavor pre-injunctive relief in cases where general confidentiality agreements would be adequate to provide relief after an injury. "Injunctions are granted under local law only where the injury to plaintiff cannot be compensated in damages." Furthermore, contracts that are ambiguous are interpreted by courts against the party having a part in their preparation.
To be valid and enforceable, a contract provision must and should include three factors: (1) consideration; (2) meet all the requirements of contract; and (3) not violate the public policy or statutory law of any state or the United States. A contract that specifically prohibits contact between two parties is also contrary to public policy, because it is in the best interest of the State to encourage and protect free association and free assembly among its citizens.
In California, for example , contract restraints that last longer than an employee’s employment period are viewed with suspicion. California Civil Code § 16600 states: "Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void, except that [inapplicable here]." (California Civil Code § 16601 – 16701) Furthermore, California statutes contain provisions that make voidable all contract provisions that deter contact between two parties and discourage one of the parties from taking part in a lawful profession, trade, or business which includes marketing, advertising, and publicity.
Because relationship NDAs are primarily characterized as undefined, unilateral, and biased, a party can easily challenge the contract restraint on injunctive grounds. From a business law perspective, a contract restraint is a limit on the freedom to conduct business. Although such restrictions are not per se illegal, many of them will be illegal if they fail to at least strike a fair balance between the interests of the parties and the right of the public. Contracts that unreasonably restrict one party’s ability to communicate to the detriment of the other are generally void, unless they specifically meet a need for relief that the court recognizes as valid. Conversely, contract restraints that place no undue hardship on any of the parties involved are generally favored and uphold their validity.
A simple contract restraint, as opposed to a contractual covenant not to compete, usually benefits both parties, while protecting a general economic interest.
How to Draft a Relationship NDA
Drafting a Relationship NDA requires asking the right questions so that the resulting document serves its intended purpose. This section provides practical advice on how the relationship NDA should be drafted.
While Oregon law does not require NDAs to be in writing, a written agreement will provide clarity and track if the other party is complying with the stated terms. The agreement may be fully written or contain binding terms vetted by an attorney but remain in draft form pending completion of legal formalities. The NDA can be tailored to each situation, but should clearly address:
• Why: What harm would occur if the information was disclosed? This enables the drafter to determine the length of time the parties will be bound (confidential information needs protection only as long as necessary).
• What: What is considered confidential? Will disclosure be strictly limited to the other party, or extended to employees, agents and affiliates? Will oral disclosures also be considered confidential even absent a written agreement?
• Who: Who will have access to the information? Can access be restricted to high-level personnel or only to specific employees named by title?
• How: In what form will the information be disclosed? In hard copy, through an application or program, etc.? Should confidential correspondence be treated as confidential?
• When: Is there a deadline for return of all confidential information? If no longer required by the terms of engagement, must all confidential information be returned or certified destroyed?
Relationship NDAs Alternatives
While a relationship NDA – or mutual non-disclosure agreement – can be the right fit for your particular situation, it is not the only game in town. Read on to learn about some alternatives that may work just as well or even better.
Confidentiality clause. A confidentiality clause in your relationship contract or cohabitation agreement can do most of the work a relationship NDA would do. Notes Angela Harris and Sara Hudik-Vanderlinde, writing for our family law blog, some of the items that are usually covered by relationship NDAs are:
- income;
- pensions;
- real estate holdings and home contents;
- business interests; and
- family and employer contacts.
All of this information can be placed into the confidentiality clause, as long as you two are not trying to hide assets from one another (in which case you should hire divorce lawyers) .
Talking to one another. Chances are, you think very highly of each other, and that means you communicate pretty well. As Harris and Hudik-Vanderlinde say, "If you have a good relationship, you have a good chance that you will be able to talk about the controversial issue of what is yours, what is his, what you will share and any other terms which seem like a good idea."
Pre-nuptial agreement. While included on our list of alternatives to relationship NDAs, there is almost nothing in common between the two – nor are they similar in how they are created. NDAs are contracts that are not subject to the same procedures or disclosure deal-breaking consequences as pre-nuptial agreements, which are contracts between two parties that are subject to tight regulation and procedural requirements.