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NDA, NCA, NSA

NON-DISCLOSURE AGREEMENT (NDA) is an agreement on confidentiality or non-disclosure of confidential information, trade secrets, which became known to the counterparties in the process of cooperation. It is one of the most common “technical” contracts in the IT field, which is almost always concluded between business partners, a startupper and an investor, a customer and a developer, an IT company and legal consultants.

  In Ukraine, NDA has an additional “psychological” protection against unfair actions of counterparties, and in relations with non-residents, it is mandatory

The NDA must necessarily define the following:

  • what information is considered confidential (program codes, databases, technologies, design, business ideas, the content of agreements, clients, partners, etc.). The list must be complete, specific and unambiguous;
  • ways of transferring confidential information;
  • what is the illegal disclosure of confidential information, that is, possible ways of its dissemination (in writing, orally, by sending to an email address, uploading to the cloud, etc.);
  • acceptable cases of disclosing information;
  • data protection measures to be taken (safekeeping of information in a certain way, avoiding of using certain resources)
  • NDA validity period (usually 2, 5, 10 years, and the obligation not to disclose confidential information exists both during the term of the main agreement and for some time after its expiration);
  • liability for disclosure (usually a fine, reimbursement of the cost of lost information, lost profits). To avoid the need to prove the amount of damage, sanctions for disclosure should be provided in a fixed amount.

NON-COMPETITION AGREEMENT (NCA) usually performs several functions: 1) protects the customer/employer from possible competition from a contractor/employee who, after the completion of the cooperation, decides to create a business in the same area or the same territory or to work for a direct competitor; 2) prevents leaking of unique knowledge, skills, ideas, customer/employer technologies, customer contacts, business practices; 3) helps the customer/employer retain qualified specialists; 4) carries out “psychological” influence on the employee/contractor.

The conclusion of the NCA is a normal practice for many countries in Europe (Germany, Netherlands, France, etc.) and the United States (with exceptance of several states). In such case, NCA is subject to the Jurisdiction of a foreign state and protects, first of all, the interests of the customer.

The conclusion of the NCA  is one of the mandatory conditions for the cooperation of non-resident customers with Ukrainian IT-companies or individual developers

For the NCA to be executed and not invalidated by the court, the following must be determined:

  • the most detailed scope of the prohibition of competition (for example, software development for a narrow-profile business, work for direct competitors);
  • reasonable restriction on the territory covered by the prohibition to compete (to define this territory, it is necessary to take into account the specifics of the business);
  • reasonable duration of the non-competition clause;
  • sufficient compensation for the employee/contractor for the relevant restrictions (single payment, bonuses to payments under the main contract, compensation for lost profits). This aspect is very important because, without mutual benefit, the NCA can be recognized as such that it puts the parties in an unequal position. In particular, in the USA, Germany, Italy, the condition for the validity of the treaty is its mutual usefulness.
  • liability for violation of the NCA.

Also, when concluding an NCA, it is necessary to take into account the intricacies of the law to which the contract is subject and judicial practice. For example, in the United States, NCAs are recognized in most states, but they are not legally binding in Silicon Valley.

NON-SOLICITATION AGREEMENT (NSA) – an agreement not to solicit either specialists or clients. The NSA aims to protect the company from a situation when former employees use the accumulated customer base to create their own businesses or in another company, and competitors send job offers to employees of their colleagues in the market. It is also quite possible for customers to poach clients. The conclusion of the NSA will help, firstly, to prevent such cases, and, secondly, it will be the basis for demanding damages and/or payment of a penalty.

NSA helps prevent solicitation of customers and employees and remain competitive in the marketplace

As a rule, NSAs are concluded with the most qualified professionals who hold senior positions or are in direct contact with clients.

    The NSA must necessarily define the following:

  • a clear list of actions that constitute solicitation (employment, the conclusion of a work contract/provision of services, offers to employees to change jobs, and clients – to choose another partner);
  • the category of employees who cannot be poached;
  • the provision that employees are not limited in the right to terminate relations with the company, or clients- to choose other contractors;
  • term of the contract (as a rule, for employees it is valid for two years after dismissal);
  • the territory covered by the restriction (depending on the scale of the business);
  • the amount of compensation for non-solicitation, commensurate with the restriction itself;
  • liability for violation of the contract (compensation for losses, payment of a penalty);
  • clause on the possibility of “buyout” of the right to cooperate with customers in the future, if it is impossible to avoid the loss of customers due to the breakdown of relations with the employee.

What to consider

VigoLex team has extensive experience in drafting NDA, NCA, NSA contracts for its Clients, taking into account the specifics of their work, needs, as well as applicable law and jurisdiction.

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