NCNDA Agreements 101: The Basics

Definition of NCNDA Agreements

Employment contracts in North Carolina usually involve non compete agreements. Many of these agreements also include non solicitation and non compete agreements (sometimes abbreviated as "NCNDA" agreement). These agreements are legally enforceable in North Carolina. Defining what a non competing non disclosure agreement is helpful in understanding the agreements themselves.
A NCNDA agreement, or Non-Circumvention, Non-Disclosure Agreement is used to protect the information about your business that you share with employees and contractors from falling into the hands of competitors. While the name suggests otherwise, a NCNDA agreement does not mean that the employee or contractor cannot compete with your company. After all, competition is good for business.
The purpose of a NCNDA agreement is to prevent former employees and contractors from taking knowledge of your clients and other business relationships to competitors. A NCNDA agreement includes a non-compete and non-solicitation agreement . When an employee or contractor ends employment or their contractual obligation, they may continue to do business with your clients as an independent contractor. The NCNDA agreement prohibits this. The NCNDA agreement also establishes a time period that the employee or contractor must wait before contacting your clients. The time period is usually between 6-12 months. This gives you time to replace them with their competition.
An NCNDA agreement protects your business information, just like a NDNC and non compete agreement. This helps level the playing field in the marketplace. In hindsight, you should probably use a Non compete agreement instead of a NCNDA. A NCNDA agreement restricts a former employee of contractor from soliciting customers and the time requirement is probably longer than a non compete agreement. A NCNDA agreement can be enforced only if the employee has intimate and specific knowledge of your business customers.

NCNDA Agreements Key Components

Before diving into specific terms, it is important to have an understanding of the key elements that make up an NCNDA agreement. Many are familiar with the concept of confidentiality clauses outside of the realm of NCNDAs, but the non-circumvention and duration of the agreement may be ideas that are less familiar. A confidentiality clause requires that a party keep certain information confidential and outlines the specific information that is covered. Generally, parties are required to keep confidential all information that is not public and is used or disclosed in connection with the NCNDA. For example, if a manufacturer intends to sell their product through a reseller, the manufacturer would not want every part of the manufacturer’s product to be available online. In this scenario, the manufacturer would want to include in the NCNDA agreement specific language around what types of information must be kept confidential. This could include information like supplier lists or pricing information. In most cases, certain information may be excluded from the confidentiality clause such as information made publicly available by a party or information that is independently developed. Similar to the confidentiality clause is the non-circumvention clause. A non-circumvention clause is an agreement between parties that they will not circumvent the terms of the agreement by either engaging directly or indirectly with each other’s respective contacts. For example, if a manufacturer and reseller were to enter into an NCNDA agreement and the reseller only agreed to identify customers to the manufacturer, the manufacturer would want to ensure that the reseller does not also normally sell directly to those customers. Accordingly, the manufacturer could add language to the non-circumvention clause that the reseller agrees not to contact the manufacturer’s customer list for certain stated purposes. Lastly, most NCNDA agreements will include a duration clause, which is essentially how long the NCNDA will be in effect. The intention of the duration clause is to clarify how long the terms of the NCNDA are in effect. Some NCNDA agreements are drafted to be effective for the duration of the relationship. However, in order to preserve the benefit of the agreement, most NCNDA agreements also include clear expiration dates that you should be carefully consider before agreeing to them. A reasonable duration may be 3 to 5 years.

Common Situations for a NCNDA Agreement

NCNDA agreements serve a multitude of purposes across a broad spectrum of industries. The confidentiality and non-circumvention terms included in these contracts help facilitate international trade, joint business ventures, reseller agreements, joint venture agreements, venture capital funding, and private investment solicitations. Non-circumvention provisions are especially helpful in industries that rely on exporters or importers to find buyers and distributors for their products. Non-disclosure clauses assist both parties in preventing the premature release of information to the public and to competitors. This helps maintain confidentiality of trade secrets, client lists, financial information, and other proprietary information. Non-circumvention provisions also limit the use of confidential information for the purpose of competing with the disclosing party.
Non-Circumvention, Non-Disclosure, and Confidentiality agreements are useful across industries. A manufacturer seeking a joint venture in China may require one before approving a Chinese distributor’s access to secret designs. In international contexts, it may be especially important to protect against opportunistic local brokers who may seek out distributors in the manufacturer’s country, in order to cut-out the manufacturer from the sale process. An investment banker attempting to locate middle market businesses for acquisition may use a fisheye NCNDA to guarantee the businesses will not set out to identify and directly approach investors.

Why You Should Have a NCNDA Agreement

Both businesses and individuals may benefit from entering into a mutually conforming NCNDA agreement before engaging in various dealings with other independent third parties. Businesses and individuals may use NCNDA agreements to protect their confidential information and proprietary information from disclosure and circumvention during Dealing One below and Dealing Two above.
NCNDA agreements may:
• Protect both parties against deliberately or inadvertently exposing their business information to the business competition or to any malicious third parties, such as intruders or hackers that may create havoc between the competing businesses or among such individual business owners.
• Protect business opportunities of both parties by preventing the unauthorized disclosure, misuse or mishandling of confidential information that both parties intended to safeguard pursuant to the NCNDA agreement before engaging in their association with each other.
• Provide a clear and fair framework for entering into business dealings and engaging in transactions between the two parties that restores some elements of trust that were diminished due to previous experiences with other bad business players.
• Allow and encourage businesses and owners to share vital and sensitive information with one another for the mutual benefit of both parties and at the same time ensuring the confidentiality and security of such information.
• Allow the opportunity to share sensitive business information with employees, contractors, business associates and business contacts. By requiring all employees and agents to sign a non-disclosure agreement , both parties will be protected by limiting the disclosure of confidential client information.
• Facilitate and expedite business transactions, business negotiations and business dealing between the parties that may not be done otherwise out of fear of revealing too much information and losing business opportunities.
• Help to preserve relationships among the two parties by helping them to understand the sensitivity of confidential and proprietary business information and to develop a deeper understanding of the importance of protecting the other party’s confidential business information.
• Provide a business-friendly environment that functions well only when everyone involved is given a fair chance to discover and enhance business opportunities that exists among two or more competing parties. The NCNDA agreement allows the opportunity to share such confidential information without worrying about being overheard or read by a third party.
• Serve to prevent misunderstandings and hard feelings that may strain relationships or kill future or ongoing business opportunities because of fears of either party not keeping good and safe custody of the sensitive information shared between the parties. An NCNDA agreement may reduce the potential for confrontation and strife between the parties over inadvertently referencing or using the other party’s confidential and proprietary information in a manner that was not intended by the other party or agreed to by both parties in the NCNDA agreement.
NCNDA agreements are used to prevent the potential for exploitation of information that comes from being a part of a business community.

How to Create an NCNDA Agreement

Developing a tailored NCNDA agreement is necessary. Ideally, after a thorough discussion with your business partner, the NCNDA agreement should be customized to specifically address any unique issues that may describe the business or transaction at hand. While most NCNDA agreements share identical sections and components, it is important to tailor an NCND agreement to fit the specific business relationship so that the parties’ expectations are clear.
For instance, if the business partners plan to work together grant permissions for NCNDA agreements with various other non-business partners or independent companies, it is helpful for the NCNDA agreement to contain sections addressing those expectations and lay out the requirements before any confidential information can be disclosed. Another consideration is if the business is going to allow the independent company to use certain confidential information that may require registration. In these instances, the company needs the freedom to register their use of the confidential information without infringing on the partner’s rights. The NCNDA agreement should make it clear whether the agreement grants the independent company permission to register the patent or trademark, or whether it may only be done with permission from the company the information was disclosed by. In drafting an NCNDA agreement, sometimes it may be necessary to write in lengthy sections to cover the specific agreement details. These details can be used to draft the NCNDA agreement and may include the methods of disclosure, ownership of assets and functions or transactions that require consent and permissions. If specific items are omitted from the NCNDA agreement, outside parties may not realize those factors are important.
If the business is seeking investors and the company needs to establish the need for NCNDA agreements, the provisions for those investors should be clearly stated in the NCNDA agreement. For instance, if the business needs to disclose confidential information to an investor without executing an NCNDA agreement, the NCNDA agreement should include requirements for how the information should be distributed and whether the investor must agree to the terms of the NCNDA agreement.
When drafting an NCNDA agreement, it is necessary to contemplate every scenario possible that could result in disclosure of confidential information. The NCNDA agreement should be broad enough, yet specific enough to cover all of the company’s needs that will result in the use and disclosure of the confidential information.

Validity of NCNDA Agreements

Determining whether an NCNDA agreement is legally enforceable depends on a number of factors, such as the following: Based on consistent case law, courts will generally require the plaintiff to present evidence establishing that the parties were in actual discussion of the possibility of entering into an agreement when the defendant allegedly learned the plaintiff’s "confidential" information. If there was no discussion of any agreement at all, the defendant cannot be bound by a nondisclosure obligation. However, whether the disclosure of confidential information gives rise to an enforceable obligation in the absence of a nondisclosure agreement is a matter of continuing dispute among the state and federal courts. Their views differ on whether there is a duty not to disclose the information if it is wrongfully acquired and under which circumstances the obligation not to use and disclose a trade secret arises. California, for example , provides an explicit common law remedy for the wrongful acquisition or disclosure of another’s trade secrets. In addition to any express agreement, California has adopted the approach that oral disclosure when a confidence exists is actionable even in the absence of a formal nondisclosure agreement, absent consideration. Florida courts are more closely aligned with the Restatement approach and require evidence of a confidential relationship (such as employment or mutual agreement) in order to prevail on a trade secrets claim. In the absence of an express or implied confidentiality agreement, the relationship between the parties may provide a basis for protection of the trade secret. A break in the chain of custody, use by a third party or disclosure to a governmental agency that does not enter into an express confidentiality agreement may also abrogate both the duty not to disclose and the obligation to keep a trade secret confidential.