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New York Non-Disclosure Agreement Template

Created by:

[Disclosing Party.FirstName][Disclosing Party.LastName][Disclosing Party.Company]

Prepared for:

[Recipient.FirstName][Recipient.LastName][Recipient.Company]

THIS Non-Disclosure Agreement (the “Agreement”), is made and entered into this [Document.CreatedDate] by and between: [Disclosing Party.Company] and [Recipient.Company] (at times Disclosing Party and Recipient shall be individually referred to as a “Party” and collectively as the “Parties”).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Recipient and the Disclosing Party hereby agree as follows:

1. Purpose.

The Recipient recognizes that the Disclosing Party has certain proprietary, confidential, and trade secret information (the “Confidential Materials”) as defined below relating to the business of the Disclosing Party and wishes to receive certain proprietary, confidential and trade secret information in connection with ____________________________________________________________________ ____________________________________________________________________

(the “Business Purpose”), and the Disclosing Party desires that all such information shall be kept confidential by Recipient. In consideration of the disclosure by the Disclosing Party the Confidential Materials the Recipient agrees to keep such information confidential in accordance with the terms and conditions set forth in this Agreement.

2. Confidential Materials.

As used herein, the term “Confidential Materials” means and includes any and all information or materials whether oral, written or in any other form relating to the Disclosing Party or the Business Purposes furnished to Recipient, or discovered by Recipient through provided access, including any and all information provided to Recipient or to any of Recipient’s directors, officers, employees, agents, or representatives (including financial advisors, consultants, and legal counsel), and all analysis, compilations, studies, or other documents or records prepared by or on behalf of Recipient which contain or otherwise reflect or are generated from such materials in connection with the Disclosing Party or the Business Purpose. Confidential Materials may include “Trade Secrets” as well as other confidential and proprietary information that is of value to the Disclosing party, including but not limited to: customer lists, vendors/suppliers lists, business or strategic plans, know hows, financial projections, future marketing campaigns, training guides, existing or proposed bids, costs etc.

Even though this agreement trying to widen the scope of the information that disclosing party seek to protect: oral as well as written communication, original information as well as information derived from it, trade secrets (something of the present or future economic value and subject to reasonable efforts to be maintained in secrecy) and other confidential information that doesn’t satisfy the requirements to be considered a trade secret,– everything can not be protected as confidential information i.e. lacking economic value or not treated with the secrecy that confidential information requires. So the following definition is not a panacea or catch-all provision that would work in any situation. Disclosing parties, are advised to familiarize themselves with the best practices on maintaining trade secrets, including: using notice of confidentiality that should accompany disclosures, keeping trade secrets accounted and documented, if they exist in a physical format they should be stamping pages with notice, and storing them in a safe or other key protected place.

NEW YORK SPECIFICS:

As noted previously New York is the state that applies a narrow approach to limit situations of anti-competitive use of the ancillary agreements.
Customer information is not considered confidential if it is readily obtainable through public sources. See, Leo Silfen, Inc. v. Cream, 29 NY2d 387 (1972); and Atmospherics Ltd. v. Hansen, 269 AD2d 400 (2nd Dept. 1997).
“In BDO Seidman, the Court of Appeals expanded this test to protect an employer’s legitimate interests as well, in certain circumstances, when the “good will” and relationships that an employee develops with the employer’s client at the employer’s expense during his employment.” Greystone Staffing, Inc. v. Goehringer, 2006 NY Slip Op 52458(U) (N.Y. Sup. Ct. 11/27/2006), 2006 NY Slip Op 52458 (N.Y. Sup. Ct. 2006).
“Customer lists …[that]… [i]n addition to customer names, … contai[n] information involving customer coverage, premium amounts, cash values, and loans against existing policies” … such information “rises to the level of ‘confidential customer information’ under Reed.” USI Ins. Servs. LLC v. Miner, 801 F.Supp.2d 175 (S.D. N.Y. 2011).
“An employer’s ‘know how’ is a protectible interest.” Greystone Staffing, Inc. v. Goehringer, 2006 NY Slip Op 52458(U) (N.Y. Sup. Ct. 11/27/2006), 2006 NY Slip Op 52458 (N.Y. Sup. Ct. 2006) quoting Stanley Tulchin Assoc. Inc. v. Vignola, 186 AD2d 183 (2nd Dept. 1992).

3. Exceptions to confidentiality.

The term “Confidential Materials” shall not include information which is (a) already known by the Recipient without an obligation of confidentiality other than this Agreement, (b) publicly known or which becomes publicly known through no unauthorized act of the Recipient,

(c) rightfully received by Recipient from a third party who is not subject to any confidentiality or fiduciary obligations with respect to such information, or (d) was requested by and is required to be disclosed pursuant to a court order, a rule or a regulation of a governmental agency or a law of the United States of America or another country, or any governmental or political subdivision thereof, so long as Recipient provides the Disclosing Party with sufficient prior notice of such requirement so as to allow the Disclosing Party an opportunity to oppose such disclosure.

NEW YORK SPECIFICS:

There is a recent case where an NDA and non-disparagement agreement in conjunction with an arbitration was weaponized as a tool to create a deterrent to participate in public hearings that could have led to disclosure of confidential information. N.Y. App. Div. court has bluntly rejected that attempt: “There is a deep-rooted, long-standing public policy in favor of a person’s right to make statements during the course of court proceedings without penalty ( Rosenberg v. MetLife, Inc., 8 N.Y.3d 359, 365, 834 N.Y.S.2d 494, 866 N.E.2d 439 [2007], quoting Toker v. Pollak, 44 N.Y.2d 211, 218, 405 N.Y.S.2d 1, 376 N.E.2d 163 [1978]). “[S]tatements uttered in the course of a judicial … proceeding are absolutely privileged” (Herzfeld & Stern v. Beck, 175 A.D.2d 689, 691, 572 N.Y.S.2d 683 [1st Dept. 1991] [internal citations omitted], lv dismissed 79 N.Y.2d 914, 581 N.Y.S.2d 666, 590 N.E.2d 251 [1992], lv dismissed 82 N.Y.2d 789, 604 N.Y.S.2d 550, 624 N.E.2d 687 [1993], lv dismissed 89 N.Y.2d 1064, 659 N.Y.S.2d 848, 681 N.E.2d 1294[1997] ). This is true so long as the statements are material and pertinent to the issues involved and “regardless of the motive with which they are made” ( Herzfeld, 175 A.D.2d at 691, 572 N.Y.S.2d 683 ).” … “To hold otherwise would impede justice by ‘hamper[ing] the search for truth and prevent [the] making [of] inquiries with that freedom and boldness which the welfare of society requires’ ( Front, Inc. v. Khalil, 24 N.Y.3d 713, 718, 4 N.Y.S.3d 581, 28 N.E.3d 15 [2015] ).” Denson v. Donald J. Trump for President, Inc., 180 A.D.3d 446, 116 N.Y.S.3d 267 (N.Y. App. Div. 2020).

4. Confidential Treatment, and Non-Use, of Confidential Materials.

Recipient agrees that, during the term of this Agreement, without the prior written consent of the Disclosing Party, Recipient will not, directly or indirectly, for its own benefit or the benefit of another, disclose or reveal to any other person, firm, venture, corporation or other business entity, or make, directly or indirectly, any commercial or other use of any of the Confidential Materials either during the course of its activities in connection with the Business Purpose or at anytime thereafter.

Recipient agrees to refrain from trading on (or otherwise using) the Confidential Materials for personal gain. Recipient agrees to use all such information solely for the purpose of evaluating the Business Purpose, and the possible transactions contemplated thereby, and to take all action necessary or appropriate to ensure that none of Recipient’s employees, officers, directors, partners, owners, or agents of Recipient disclose, reveal, or use any Confidential Materials in any manner whatsoever except on behalf of Recipient and at its direction and under its control in the course of its review as expressly authorized hereunder, and subject to strict compliance with each of the limitations and other provisions hereof.

Recipient will disclose Confidential Materials only to those high-level employees or agents directly engaged in evaluating or carrying out the Business Purpose, and the possible transactions contemplated thereby, who agree to be bound by the terms of this Agreement, and Recipient will disclose to such persons only such information as is required for them to accomplish their respective assigned task(s) with respect to each such evaluation. In the case of discovery of any unauthorized use or disclosure of Confidential Information or any other breach of this Agreement Recipient will immediately notify the Disclosing Party, and will cooperate with Company in every reasonable way to regain possession of the Confidential Information and prevent its further unauthorized use or disclosure.

5. Return of Confidential Materials.

(a) Except as Provided in Section 5(b), upon the earlier of (i) the completion of the Business Purpose, (ii) written request of the Disclosing Party or (iii) the expiration of the term of this Agreement, Recipient shall return all copies of such Confidential Materials and all derivatives thereof to the Disclosing Party or shall cause to be destroyed all copies of such Confidential Materials and all derivatives, and certify in writing to the Disclosing Party that such Confidential Materials and derivatives have been destroyed. Recipient may return Confidential Materials, or any part thereof, to the Disclosing Party at any time. (b) Recipient shall be permitted to keep copies of Confidential Materials to the extent that (i) recipient document retention procedures, applicable accounting or tax professional standards or applicable law require retention thereof or (ii) such copies are electronic archival copies made as part of an automatic backup or disaster recovery process.

6. No Further Rights; No Warranties; No Third Party Beneficiary.

Nothing contained in this Agreement shall (i) be construed as granting or conferring any rights by license or otherwise in or to the Confidential Materials except for the use of such Confidential Materials as expressly provided herein, or (ii) grant to Recipient or any other person any right, or be construed as offering to Recipient or any other person any right, in or to the Business Purpose or any investment therein.

The Disclosing Party, or their respective directors, officers, employees, agents, or representatives make no representation or warranty as to the accuracy of completeness of any Confidential Materials, except as may be set forth in the future in any definitive written acquisition, investment or other agreement relating to the Business Purpose. This Agreement is not intended, nor shall it be construed, to create any right in or upon any person or entity not a party to this Agreement.

7. No Exclusive Discussions; Non-Circumvention.

The Parties acknowledge and agree that the provision by the Disclosing Party of Confidential Materials and/or any discussions held in connection with the Business Purpose shall not prevent the Disclosing Party from providing Confidential Materials to, and exploring Business Purpose opportunities with, third parties.

Further, Recipient acknowledges that the Disclosing Party has a unique and valuable asset in its relationships with its customers and vendors, and that the Disclosing Party would be damaged if Recipient attempted to usurp or circumvent the Business Purpose by any means or with any information whatsoever, whether gained through meetings, discussions or correspondence with representatives of the Disclosing Party, its customers and vendors, or otherwise; and agrees (i) not to have discussions regarding, or to take any action in respect of, the Business Purpose with any third party which would circumvent or impair the Disclosing Party’s ability to pursue the Business Purpose, and (ii) not to use, resource or leverage for Recipient’s benefit or for the benefit of others in connection with the Business Purpose, either directly or indirectly.

8. Expenses:

Each Party is responsible for its own costs and expenses concerning or arising from this Agreement, including expenses or losses by the Parties stemming from preparation, or as a result of this Agreement, whether incurred or future one.

9. Enforcement.

Recipient acknowledges that the Disclosing Party would suffer irreparable damage in the event of any material breach of the provisions of this Agreement. Accordingly, in such an event, the Disclosing Party will be entitled to seek preliminary and final injunctive relief, as well as any other applicable remedies at law, including reimbursement of any and all legal costs that it may have expended in connection with such breaches, against Recipient if it breaches this Agreement.

Recipient shall indemnify and hold the Disclosing Party, and their respective shareholders, directors, officers, employees, agents, and representatives ( the “Indemnified Parties”), harmless from and against any and all losses, claims, obligations, demands, assessments, penalties, liabilities, costs, damages, attorneys’ fees and expenses, asserted against or incurred by any of the Indemnified Parties arising or resulting from any breach of the provisions of this Agreement by Recipient or the unauthorized disclosure or use by Recipient’s directors, officers, employees, agents, or representatives of any of the Confidential Materials.

In the employment situation employers can also condition receipt of postemployment benefits upon compliance with a restrictive covenant. See Morris, 7 N.Y.3d at 620–621, 825 N.Y.S.2d 697, 859 N.E.2d 503; Lucente v. International Bus. Mach. Corp., 310 F.3d 243, 254. “Under the “employee choice doctrine,” if an employee “is given the choice of preserving his [or her] rights under his [or her] contract by refraining from competition or risking forfeiture of such rights by exercising his [or her] right to compete, there is no unreasonable restraint upon an employee’s liberty to earn a living” ( Morris, 7 N.Y.3d at 621, 825 N.Y.S.2d 697, 859 N.E.2d 503;see Kristt v. Whelan, 4 A.D.2d 195, 199, 164 N.Y.S.2d 239,affd.5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116). Where the doctrine applies, “a restrictive covenant will be enforceable without regard to reasonableness” so long as an employee voluntarily left his or her employment ( Morris, 7 N.Y.3d at 621, 825 N.Y.S.2d 697, 859 N.E.2d 503;see Post, 48 N.Y.2d at 89, 421 N.Y.S.2d 847, 397 N.E.2d 358;see also Lucente, 310 F.3d at 254; International Bus. Mach. Corp. v. Martson, 37 F.Supp.2d 613, 619–620).” Lenel Sys. Int’l, Inc. v. Smith, 106 A.D.3d 1536, 966 N.Y.S.2d 618, 2013 N.Y. Slip Op. 3259 (N.Y. App. Div. 2013)

If an information is considered to be a trade secret there is a much bigger chance that that court would support injunctive relief. “A trade secret once lost is, of course, lost forever and, therefore, such a loss cannot be measured in money damages.’ Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 174 (S.D.N.Y. 2006)…” Int’l Bus. Machs. Corp. v. Visentin (S.D. N.Y. 2011) However court would consider the following factors “determining whether the disclosure of trade secrets is inevitable, … including: (1) the employers in question are direct competitors providing the same or very similar products or services; (2) the employee’s new position is nearly identical to his old one, such that he could not reasonably be expected to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; and (3) the trade secrets at issue are highly valuable to both employers. Other case-specific factors such as the nature of the industry and trade secrets should be considered as well.” Int’l Bus. Machs. Corp. v. Visentin (S.D. N.Y. 2011) quoting EarthWeb, Inc., 71 F. Supp. 2d at 310.

10. Media Releases.

All media releases and public announcements or disclosures by either party hereto which relate to this Agreement, its subject matter or the Business Purpose shall be coordinated with and approved by the other party in writing prior to the release thereof.

11. Term.

The term of this Agreement shall commence on the date hereof and end on the ______________ anniversary of the last date that Recipient receives Confidential Materials from the Disclosing Party, provided that any obligations of the confidentiality in regards to the Trade Secrets shall survive the agreement for the length of its economic usefulness.

12. Miscellaneous.

(a) Any notices required by this Agreement shall be given in hand and receipted, or sent by express courier service, delivery receipt required, to the applicable address set forth below. Either party may from time to time specify as its address for purposes of the Agreement any other address upon the giving of ten days written notice thereof to the other party:

In the case of Disclosing Party:

[Disclosing Party.StreetAddress][Disclosing Party.City][Disclosing Party.State][Disclosing Party.PostalCode]

e-mail:[Disclosing Party.Email]

Attn: __________________________________

In the case of the Recipient:

[Recipient.StreetAddress][Recipient.City][Recipient.State][Recipient.PostalCode]

e-mail:[Recipient.Email]

Attn: __________________________________

(b) The Parties agree that this Agreement (i) is the complete and exclusive statement between the parties with respect to the subject matter hereof, except to the extent that this Agreement makes reference to other agreements (ii) supersedes all related discussions and other communications between the parties related to the subject matter hereof, (iii) only be modified in writing by the authorized representatives of the parties, (iv) shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of laws provisions or your actual state or country of residence, and (v) any claims, legal proceeding or litigation arising out of this Agreement should be brought solely in the Delaware Court of Chancery, and you consent to the jurisdiction of such court.

In a recent decision Ascension Ins. Holdings, LLC v. Underwood (Del. Ch. 2015) and later reaffirmed in Focus Financial Partners, LLC v. Holsopple, 241 A.3d 784 (Del. Ch. 2020) Delaware Chancery court noted that “Delaware law respects the parties’ right to freedom of contract, including with respect to reasonable covenants not to compete. Delaware also follows the Restatement (Second) of Conflict of Laws (the “Restatement”), under which the parties’ choice of law will generally control an agreement. The Restatement recognizes an exception to that general principle,… that allowing parties to circumvent state policy-based contractual prohibitions through the promiscuous use of such provisions would eliminate the right of the default state to have control over enforceability of contracts concerning its citizens.” thus impermissible. Hence, if you are using Delaware law to avoid your state law prohibitions, there is a big chance that it may not work, even though his agreement is trying to compensate for it by providing the following verbiage: “without giving effect to its conflict of laws provisions or your actual state or country of residence”.

(c) The undersigned officers, representatives or partners of the Parties represent and warrant that they have full power and authority to execute and deliver this Agreement on behalf of their respective entities, and that this Agreement is valid and enforceable in accordance with its terms.

(d) A waiver by any party hereto of any particular breach of default in connection with any provision of this Agreement shall not be deemed as a waiver of any subsequent default or breach of that same or any other provision of this Agreement.

(e) If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be severable and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance.

IN WITNESS WHEREOF, Recipient and the Disclosing Party have each caused this Agreement to be signed and delivered all as of the date first above set forth.

[Disclosing Party.FirstName][Disclosing Party.LastName][Disclosing Party.Company]

[Recipient.FirstName][Recipient.LastName][Recipient.Company]

Signature

MM / DD / YYYY

Signature

MM / DD / YYYY

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FAQ

Yes, limited by the reasonableness standard, NDA are enforceable in New York. Moreover New York is a “blue-pencil” state that in “…an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct, …[by employer that]… has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing…” would apply partial enforcement. BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999).

NDA is a legally binding agreement that prevents the party receiving sensitive information from sharing and disseminating it with others. In other words it protects the interest of the disclosing party by limiting the receiving party’s ability on how they can use the information received.

It is not, a “gag order” is a name for the order that judges use to prohibit court proceedings’ participants: parties, attorneys, witnesses from talking to the public about the case, and is generally used to prevent an unfair trial by affecting jurors (including potential ones) outside the courtroom, while NDA is an agreement between two parties, where one is sharing voluntarily some sensitive information with the other, who agrees to keep that information confidential. It may be used as part of the settlement in the court trial proceedings and be approved by a judge, but it generally signifies the end of a court action. It is not used to prevent possibly an unfair trial in the future, where jurors may be biased due to widespread public opinion. In New York there are limitations on the use of NDA in settlements for the cases involving discrimiation, where the use of such should be allowed only as the preference of the complainant.

A real estate non-disclosure agreement (NDA) as any other NDA designed to protect a disclosing party (generally a seller) that shares confidential information with a receiving party (prospective buyer). One of the areas it can be used is in the situation with 3rd parties involved i.e. lessee that would not want their information to be shared publicly.

What are NDA laws?

The State of New York does not have statutory law that would regulate Trade Secrets or Confidential information. In fact, according to the Uniform Law Commission website, there are only two states in the USA that have yet to enact their own version of the Uniform Trade Secrets Act: New York and North Carolina. There is however a proposed Senate Bill S3547 for 2021-2022 legislative session, that is currently shown “in-Committee” status on the New York State Senate website, that would create the uniform trade secrets act. Also there is enacted Section 5-336 “Nondisclosure agreements” of General Obligations (GOB) Chapter 24-A, Article 5, Title 3 that places some limits on the use of the Nondisclosure agreements in the employment cases that involve situations of discrimination in violation of Article 15 Human Rights Law of Executive (EXC) Chapter 18. Otherwise, nondisclosure provisions are considered to be a part of a broader restrictive covenants and are regulated by common law precedents. The two most prominent cases on the restrictive covenants in New York are: BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) and Reed, Roberts Assocs. v. Strauman, 40 N.Y.2d 303 (1976). In those cases New York followed: “The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public (see, e.g., Technical Aid Corp. v Allen, 134 NH 1, 8, 591 A2d 262, 265-266; Blake, op. cit., at 648-649; Restatement [Second] of Contracts § 188).” BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999) and has adopted: “…standard of reasonableness in determining the validity of employee agreements not to compete. “In this context a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee” ( Reed, Roberts Assocs. v Strauman, 40 NY2d 303, 307).” BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999)

This standard was even more limited by strict application “to limit enforcement of broad restraints on competition. Thus, in Reed, Roberts Assocs. (supra), [court] limited the cognizable employer interests under the first prong of the common-law rule to the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary (40 NY2d, at 308).” BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999).

However a less restrictive approach is used “where a business is sold, [there] anticompetition covenants will be enforceable, if reasonable in time, scope and extent. These covenants are designed to protect the goodwill integral to the business from usurpation by the former owner while at the same time allowing an owner to profit from the goodwill which he may have spent years creating. (See, e.g., Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 271, 246 N.Y.S.2d 600, 602, 196 N.E.2d 245, 247 and authorities cited there; see, also, Mandel, Preparation of Commercial Agreements (1970 ed.), pp. 52–54.)…” Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d 590 (N.Y. 1976).

New York case law also defines what a trade secret is by using the definition provided “…in section 757 of Restatement of Torts, comment b … ( Matter of New York Tel. Co. v. Public Serv. Commn., 56 N.Y.2d 213, 219, n. 3, 451 N.Y.S.2d 679, 436 N.E.2d 1281; see also, Delta Filter Corp. [624 N.E.2d 1013] v. Morin, 108 A.D.2d 991, 992, 485 N.Y.S.2d 143; Eagle Comtronics v. Pico, Inc., 89 A.D.2d 803, 804, 453 N.Y.S.2d 470, lv. denied 58 N.Y.2d 601, 458 N.Y.S.2d 1025, 444 N.E.2d 1012). It defines a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” (Id.) The Restatement suggests that in deciding a trade secret claim several factors should be considered:

“(1) the extent to which the information is known outside of [the] business; (2) the extent to which it is known by employees and others involved in [the] business; (3) the extent of measures taken by [the business] to guard the secrecy of the information; (4) the value of the information to [the business] and [its] competitors; (5) the amount of effort or money expended by [the business] in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others” (Restatement of Torts § 757, comment b).” Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 604 N.Y.S.2d 912, 624 N.E.2d 1007 (N.Y. 1993)

“To prevail on a claim for misappropriation of trade secrets a plaintiff must prove that 1) it possesses a trade secret and 2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means. DoubleClick Inc. v. Henderson, No. 116914/97, 1997 WL 731413 (N.Y.Sup.Ct. Nov. 7, 1997) (citing Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir.1990)).” The Ayco Co. v. Frisch, 795 F.Supp.2d 193 (N.D. N.Y. 2011)

NOTE 1: Purpose or Use case restriction is an important element of limiting what recipient can do with information shared or acquired and whether such use would be considered to be authorized or you may seek to enjoin them from doing so. The example of business purpose may be: employment of … as…; possible friendly merger/acquisition of the Disclosing Party; assessment of the Disclosing Party creditworthiness as a potential lender and opening a credit line for the Disclosing Party; development of the product …; starting a joint venture etc.

NEW YORK SPECIFICS:

For the purpose of using NDA as an ancillary agreement for employment, keep in mind that in general, New York courts “strictly apply the rule of reasonableness to limit enforcement of broad restraints on competition.” BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999). So any “agreement, [that] in its purpose and effect, is a form of ancillary employee anti-competitive agreement … will be carefully scrutinized by the courts (see, Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499)…” BDO Seidman v. Hirshberg, 690 N.Y.S.2d 854, 93 N.Y.2d 382, 712 N.E.2d 1220 (N.Y. 1999). Hence it is very important how the purpose of the agreement will be stated. It is also noted however that “[a]n employer has sufficient interest in retaining present customers to support an employee covenant where the employee’s relationship with the customers is such that there is a substantial risk that the employee may be able to divert all or part of the business.” 173 F.3d at 72 (citing Service Sys. Corp. v. Harris, 41 A.D.2d 20, 341 N.Y.S.2d 702, 705–06 (N.Y.App.Div.1973)…” USI Ins. Servs. LLC v. Miner, 801 F.Supp.2d 175 (S.D. N.Y. 2011).

A different standard however is applicable for the seller of “goodwill”. “…[U]nder New York law, a seller of goodwill has an “implied covenant” or a “duty to refrain from soliciting former customers, which arises upon the sale of the ‘good will’ of an established business.” Bessemer Trust Co. v. Branin, 16 N.Y.3d 549, 556, 925 N.Y.S.2d 371, 949 N.E.2d 462 (2011) (quoting Mohawk Maint. Co. v. Kessler, 52 N.Y.2d 276, 283, 437 N.Y.S.2d 646, 419 N.E.2d 324 (1981)). This implied covenant not to solicit former customers is permanent and not subject to divestiture after a reasonable amount of time has passed. Id. The duty not to solicit former clients arising from the sale of goodwill is distinct from the duty not to compete in the industry, which may only arise out of an express agreement. Mohawk, 52 N.Y.2d at 285, 437 N.Y.S.2d 646, 419 N.E.2d 324.” USI Ins. Servs. LLC v. Miner, 801 F.Supp.2d 175 (S.D. N.Y. 2011). Same logic seems to be applicable for an obligation to keep information confidential, in the case of a sale of the “goodwill”.

Lastly, it appears that there had been a somewhat relaxed approach in upholding confidentiality provision as part of the severance and release agreement. Please consider Reversible Destiny Found., Inc. v. Post, 173 A.D.3d 647, 103 N.Y.S.3d 410 (N.Y. App. Div. 2019) case, where the court has used BDO Seidman v. Hirshberg 93 N.Y.2d 382, 388–389, 690 N.Y.S.2d 854, 712 N.E.2d 1220 [1999] standard finding that “the [restrictive] covenants are narrow in scope, do not evince anti-competitive intent, and do not even bear on defendants’ ability to earn a livelihood” and rejecting notion that “[t]he restrictive covenants in the agreement [we]re an unlawful retaliation against Post for blowing the whistle on plaintiff’s misappropriation of property belonging to [the company they used to work for]…” and that “the covenants do a disservice to the public interest because they deprive defendants and [the company they used to work for] from taking important steps to recover misappropriated artwork.” Reversible Destiny Found., Inc. v. Post, 173 A.D.3d 647, 103 N.Y.S.3d 410 (N.Y. App. Div. 2019). In this case the court has provided an opinion in regards dismissal of affirmative defenses (public policy argument and lack of consideration), as such it does not provide the full picture, and it is not clear whether there was an injunctive relief sought or just a monetary compensation. It seems if the complete ban on communication with law enforcement agencies or court was sought there could have been a different outcome. Here it appears that Post was seeking to keep both compensation paid and return the misappropriated artwork, rights to which she has allegedly released with her possible other claims by entering in the agreement.

NOTE 2: In the case of the NDA used for the discussion of a sale of public company New York City Bar Association Model Form of Non-Disclosure Agreement written by Corporation Law Committee (February 2015) suggested inserting the word “negotiated” to make clear that the information may only be used in a consensual transaction (particularly if a standstill is not included) in recognition of the In Martin Marietta Materials, Inc. v. Vulcan Materials Co., 68 A.3d 1208 (Del. 2012) where court has enjoined Martin Marietta Materials from a hostile takeover bid due to the fact that it was not covered in the use restriction part that limited production of the information to negotiating friendly business combination.

If the company is a publicly traded company you may also want to include a specific standstill provision or even enter in a separate standstill agreement that would prohibit (enjoin) specific activities by the Recipient like: infiltrating the board by nominating new or replacing old board members; accumulating amount of shares in the excess of certain amount; entering specific market of goods or services; developing certain products or applications.

NOTE 3: For the NDA with potential future or existing employees, the disclosing party will typically complement NDA with Non-compete agreement in order not only preserve confidentiality of the shared information but also prevent former employees from working on the competitor or setting up a competing business of their own.

NEW YORK SPECIFICS:

Many researchers on the topic of the enforceability of the Non-disclosure agreement express the concern in regards the timing when NDA should be entered, suggesting that it should be done simultaneously or preceding the employment contract to be enforceable or condition it to promotion or increase in pay if it is done after the employment relation have started. Even though there is no specific case cited for the reference, lack of consideration is certainly one of the most widely used reasons to find a contract unenforceable in NY (i.e. Ebrahimzadeh v. Connaught Tower Corp., 2017 NY Slip Op 31751(U) (N.Y. Sup. Ct. 2017), “A restrictive covenant entered into after an employee’s service begins is enforceable if supported by new consideration in the form of a corresponding benefit or a beneficial change in employment status…” NBTY, Inc. v. Vigliante, 26 N.Y.S.3d 725(Table) (N.Y. Sup. Ct. 2015)).