Non-disclosure agreements (NDA): a comprehensive guide

Service page: Commercial contracts lawyer: drafting, review and enforcement.

What types of NDAs are there?

Three common types:

• One-way agreement (Unilateral NDA): one party owns the confidential information (the disclosing party), and the other party undertakes to protect it.
• Two-way agreement (Mutual NDA): two parties keep each other’s secrets, as in collaborations or business negotiations.
• Multi-party agreement (Multilateral NDA): more than two parties are involved, as when working with outside contractors or consultants.

What the law adds to the agreement

The agreement is a contract. A party that breached it is exposed to a claim for enforcement, including an order prohibiting further use of the information, and for damages, in addition to enforcement or instead of it (sections 2 and 3 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970). Damages for loss must be proved, and they are limited to loss that the party in breach foresaw or should have foreseen when the contract was made (section 10).

Liquidated damages. An amount set in advance in the agreement is paid without proof of damage, but the court may reduce it if it was set without any reasonable relation to the damage that could have been foreseen (section 15(a) of the same Law). An excessive amount does not deter more; it only opens a dispute.

A trade secret is protected even without an agreement. A “trade secret” is business information that is not public knowledge and cannot easily be discovered, whose confidentiality gives its owner an advantage over competitors, provided that the owner takes reasonable measures to protect it (section 5 of the Commercial Torts Law, 5759-1999). Using it without consent, in breach of a contractual obligation or a duty of trust, is “misappropriation of a trade secret” (section 6(b)(2)). The defendant is presumed to have used the secret if they had access to it and the information they use is substantially similar to it (section 10), and the court may award up to NIS 100,000 for each tort without proof of damage (section 13).

An NDA is also a “reasonable measure”. For information to count as a trade secret, you need to show that the owner protected it. A signed agreement, marking documents and limiting access are exactly the evidence for that.

What the agreement cannot do. A contract whose content is contrary to public policy is void (section 30 of the Contracts (General Part) Law, 5733-1973). A “non-disclosure” agreement that in practice prevents an employee from working in their field is examined as a non-compete clause, and an employee is not liable for knowledge that has become part of their general professional skills (section 7(a)(1) of the Commercial Torts Law).

When you claim for loss, and not compensation without proof, you need to quantify it: deals or customers that were lost, a drop in income compared with the period before, and the profit the party in breach made from the information. Such quantification relies on the business’s bookkeeping and reports, so it is worth building it early.

The National Labor Court held that a non-compete clause in an employment contract will be enforced only when it protects a legitimate interest of the employer, such as a trade secret, and not when its whole purpose is to prevent the employee from working for a competitor (Labor Appeal (ע״ע) (National) 164/99 Dan Frumer and Check Point Software Technologies Ltd. v. Redguard Ltd., National Labor Court, Judges Adler, Barak and Plitman, 4 June 1999 (Nevo)). So a well-drafted NDA protects the employer better than a broad non-compete clause.

Outline of an NDA: the clauses

The list sets out the topics that an NDA needs to cover. It is not ready-made wording: the content of each clause is adapted to the transaction.

1. The parties, and which of them discloses, receives, or both.
2. The purpose: [what the information is given for].
3. Definition of “confidential information”: [the types of information], and whether marking is required.
4. The exceptions: known to the public, already held by the recipient, developed independently, lawfully received from someone else, disclosure required by law.
5. The recipient’s duties: protection, use only for the purpose, passing it on only to those who need to know and are bound by confidentiality.
6. Duration of the duty: [period] after the end of the relationship.
7. Return and deletion at the end, on demand.
8. No transfer of rights: giving the information does not grant a license or ownership.
9. Remedies: an injunction, and liquidated damages if set, in an amount with a reasonable relation to the expected damage.
10. Law and jurisdiction: the governing law and the place of jurisdiction.

Frequently asked questions

The other side breached a non-disclosure agreement (NDA). What can you sue for?

You can argue on two routes at the same time. The agreement is a contract, so the remedies in the Contracts (Remedies for Breach of Contract) Law, 5731-1970 are available: enforcement, including a prohibitory order against continued use (sections 1 and 2), and damages for loss that the party in breach foresaw or should have foreseen when the contract was made (section 10). And if the information is a “trade secret” (section 5 of the Commercial Torts Law, 5759-1999), using it without its owner’s consent in breach of a contractual obligation is “misappropriation of a trade secret” (section 6(b)(2)), and the court may award compensation for it without proof of damage of up to NIS 100,000 for each tort (section 13(a)). The defendant is presumed to have used the secret if they had access to it and the information they use is substantially similar to it (section 10 of the same Law). See Trade secrets: protection and enforcement in Israel.

A non-disclosure agreement (NDA) with an employee: what is important to know?

An NDA with an employee is a contractual obligation, and using a trade secret without its owner’s consent in breach of it is misappropriation of a trade secret (section 6(b)(2) of the Commercial Torts Law). Two important qualifications: a person is not liable for knowledge that came to them in the course of their work for the owner of the secret and has become part of their general professional skills (section 7(a)(1)), and a claim between an employee and an employer whose cause of action is misappropriation of a trade secret and that arises from the employment relationship is heard in the exclusive jurisdiction of the Regional Labor Court (section 22(a)). On employees’ duties before, during and after employment, see Employee confidentiality: duties before, during and after employment.

What is the difference between a non-disclosure agreement (NDA) and a non-compete agreement?

An NDA prohibits disclosing information or using it other than for the agreed purpose. A non-compete clause restricts the other party from working in a certain field or for a competitor, so it touches on freedom of occupation: “Every Israel national or resident has the right to engage in any occupation, profession or trade” (section 3 of Basic Law: Freedom of Occupation). A contract whose content is contrary to public policy is void (section 30 of the Contracts (General Part) Law, 5733-1973), and the validity of a non-compete clause depends on the circumstances. See Non-compete agreement: what is valid and what is not in Israel.

A one-way or mutual NDA: what is the difference?

In a one-way agreement, only one party gives information, and the other party undertakes to protect it. In a mutual agreement, both parties give information, for example in negotiations on a collaboration, and both undertake obligations. In a mutual agreement, check that the duties, the exceptions and the remedies are the same for both parties, and that one party did not draft lighter duties for itself.

How long is an NDA valid?

The law does not set a period. The agreement sets how long the duty of confidentiality continues after the end of the relationship. A duty that is too short leaves sensitive information without protection, and a duty that is too long for information that becomes outdated invites a dispute. A trade secret is protected under the Commercial Torts Law as long as it meets the definition in section 5, regardless of the period in the agreement.

What should the agreement include so that it can be enforced?

A precise definition of the confidential information, the purpose for which it is given, the exceptions, the duration of the duty, a duty to return and delete, and the remedy: an injunction and liquidated damages in a reasonable amount. The court may reduce liquidated damages that were set without any reasonable relation to the expected damage (section 15(a) of the Contracts (Remedies) Law).