An NDA is a cheap document with an unusual job. It is meant to protect something the owner hopes will never need to be discussed in public, and if it ever gets tested, the damage may already be done. Owners tend to expect one of two things from it: either it’s a magic shield, or it’s a meaningless form. The truth lies somewhere between.
A well-prepared non-disclosure agreement can stop a prospective buyer from using your margins against you. It can give you a clear claim against a former contractor who copied your customer list. It can’t make public information secret, and it won’t replace basic care in how you handle sensitive material. A court can also read it narrowly, or refuse to enforce an overreaching version.
Consider this general information about Ontario law, not legal advice on your own agreement. Specific wording and the facts surrounding disclosure make a big difference here.
What an NDA Actually Does
A non-disclosure or confidentiality agreement is a contract. One party, or each party, promises to keep specified information confidential and use it only for an agreed purpose. A breach gives the other side a claim in contract.
There is also a separate protection without any contract at all. The Supreme Court of Canada, in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 SCR 574, addressed the law of breach of confidence. In broad terms, a claimant must show the information was confidential, that it was communicated in confidence, and that it was misused to the claimant’s detriment. An NDA helps because it removes argument over whether the setting was confidential and sets out what use is permitted.
Where NDAs Do Their Best Work
Certain situations are almost made for these agreements.
Selling a business. A buyer’s due diligence might expose customers, pricing, staff pay and supplier terms. If the deal collapses and the buyer is a competitor, those details are valuable. An NDA signed before any data is shared, with terms prohibiting use outside evaluating the deal and requiring return or destruction, is a basic precaution.
Working with contractors and developers. A Brampton retailer hiring a freelance developer may reveal source code, supplier lists or a launch plan. The NDA should sit alongside clear terms on who owns the work created.
Pitching a partner or manufacturer. Before you show a factory your product design, consider that disclosure could also affect your ability to obtain patent protection. Speak with a patent professional before any public or non-confidential disclosure of a potential invention.
Employment. Confidentiality terms in an employment contract often protect client information and internal processes, both during and after employment. Our privacy and data page covers the related issue of how a business handles personal information it holds about others.
Why Some NDAs Fail
Most failures trace back to a few recurring problems.
The information was never confidential
A signed NDA doesn’t transform public information into a secret. Prices on your website, facts disclosed at a trade show, and knowledge generally available in the industry are all poor candidates. Standard exclusions usually say so explicitly: information already public, already known to the recipient, independently developed, or lawfully received from someone else.
A person’s general skills and experience also fall outside what an NDA can usually lock away. A truck dispatcher who learned how dispatch works can generally use that skill at the next job. A list of your specific customers and their rates is a different matter.
The definition is either too vague or too broad
“All information of any kind” sounds protective. It’s actually a weakness. If everything is confidential, it’s difficult to tell what really is, and a court may be skeptical of a clause preventing a former employee from using ordinary knowledge. On the other hand, a definition limited to documents stamped “confidential” can fail when someone explains your pricing model on a phone call.
A better approach names real categories: customer lists, pricing, formulas, source code, marketing plans, financial information. It also says that information counts if a reasonable person would understand it as confidential, however it was shared.
It tries to be a non-compete in disguise
Ontario’s Employment Standards Act, 2000 generally prohibits non-compete agreements between employers and employees, subject to limited exceptions for certain executives and sales of a business. A confidentiality clause that protects real secrets is still allowed. But one drafted so broadly that a worker can’t practically take a job in the same field risks being attacked as an effective non-compete or an unreasonable restraint of trade. Employers should keep confidentiality, non-solicitation and non-competition terms separate and purposeful.
Nobody actually treated the material as secret
If your “confidential” pricing spreadsheet sits in a shared folder accessible to every seasonal worker, it’s hard to convince a judge that it mattered. Courts look at conduct. Reasonable practical steps include limiting access, using passwords, marking key documents, disabling accounts when people leave, and reminding departing staff of their obligations.
The wrong parties signed
An agreement with a corporation may not clearly bind its owner, affiliated companies, or an outside consultant. Check the legal names. If you’re talking to a numbered company, know who stands behind it. Require the recipient to be responsible for its advisers and employees who receive your information.
There is no evidence of a breach
Being sure that a former partner took your list isn’t the same as proving it. Keep records of what was shared, when and with whom. A virtual data room with access logs is a simple way to do this in a sale process. If you suspect a problem, preserve emails and logs rather than deleting anything.
What NDAs Cannot Legitimately Do
Some limits are grounded in public policy and statute, and a broad clause can’t override them.
An agreement can’t properly be used to stop someone from reporting a crime to police or cooperating with law enforcement or regulators. The Criminal Code separately prohibits employers from retaliating against employees to deter them from giving law enforcement information about an offence. Employers shouldn’t draft in ways that suggest otherwise. Language confirming that nothing prevents lawful reporting is both honest and sensible.
Employment rights also can’t be waived through confidentiality language. Under the Employment Standards Act, 2000, parties generally can’t contract out of the minimum standards, and a worker’s right to file a complaint remains.
Settlement NDAs in cases of workplace harassment or sexual misconduct attract particular concern. Ontario has restricted non-disclosure terms in a narrow post-secondary setting, involving sexual misconduct findings against employees of colleges and universities. Other Canadian jurisdictions have enacted broader legislation, and Ontario has examined whether to go further. Anyone drafting or being asked to sign a settlement in this area should check the current rules and get individual advice. Silence terms in these settlements should never be used casually.
Clauses Worth Reading Carefully
If you’ve been handed someone else’s form, spend most of your time on the following.
- Direction. Is the agreement mutual or one-way? If you are sharing too, you need protection in both directions.
- Permitted purpose. “To evaluate a possible purchase of the business” is far better than no purpose at all.
- Term. How long do the obligations last? Two to five years is common for business information, yet a true trade secret may need protection for as long as it stays secret.
- Return or destruction. Expect a carve-out for routine backups and records that must legally be kept, and for what the recipient’s advisers must retain.
- Non-solicitation and standstill. Sometimes tucked into an NDA, these can restrict hiring or customer contact, and may be more significant than the confidentiality promise itself.
- Compelled disclosure. A party ordered by a court or regulator to disclose should usually give prompt notice where lawful.
- Remedies. Many NDAs have the recipient acknowledge that damages may be inadequate. This helps but doesn’t guarantee an injunction.
- Governing law and forum. An Ontario business should think twice before agreeing to enforce an NDA in a distant jurisdiction.
What Happens When Someone Breaches
Speed matters. Once information is out, you often can’t call it back. A lawyer can help assess whether to send a demand letter or go straight to court. Interlocutory injunctions in Ontario require a claimant to show a serious issue to be tried, irreparable harm and a favourable balance of convenience. Stronger evidence and a prompt response both help, because delay can undercut a claim that the harm is urgent.
Damages may include lost profits, and some cases allow recovery of the profit made by the wrongdoer. Proving loss can be hard, particularly for small businesses without clean records. The general limitation period in Ontario is two years from discovery of the claim, subject to exceptions, so don’t let the issue sit. For a sense of how such disputes are handled, see our page on business litigation.
If you’re the person accused of breaching an NDA, don’t delete anything, and don’t reply with a long explanation before speaking to a lawyer. Deleting material after a dispute arises can make the situation worse.
Practical Steps for a Small Business
A short list goes a long way. Decide what truly needs protecting, and be specific. Have the NDA signed before sharing anything sensitive, not after the first meeting. Share in stages, holding back the most sensitive items until the deal is further along. Limit access inside your own company. Keep a log of what went out. Tailor the form so it reflects the actual relationship, and don’t use a template found online without reading it.
Our contracts page describes help with drafting and reviewing these agreements. Treat the NDA as one layer among several; with good information habits behind it, it stands a much better chance of working when you need it.