In today’s competitive and interconnected business landscape, safeguarding sensitive information has never been more critical. Whether you’re launching a startup, negotiating a merger, or hiring a new employee, Confidentiality Agreements—also known as Non-Disclosure Agreements (NDAs)—are essential legal tools for protecting proprietary and confidential information. This article explores the function, enforceability, and best practices of confidentiality agreements under Ontario law, helping businesses and professionals understand how to use them effectively.

What Is a Confidentiality Agreement?

A Confidentiality Agreement is a legally binding contract in which one or more parties agree to keep specific information private and not disclose it to third parties without proper authorization. These agreements can be mutual—where both parties share confidential information—or unilateral, where only one party discloses sensitive information.

Confidentiality agreements are widely used across industries in Ontario and throughout Canada to protect:

• Business plans and strategies

• Trade secrets and proprietary processes

• Customer lists and data

• Financial information

• Employee or contractor details

• Intellectual property pending patent or trademark protection

• Negotiation terms during business deals (e.g., mergers and acquisitions)

Legal Framework in Ontario

In Ontario, confidentiality agreements are governed by contract law, which stems from both common law principles and provincial legislation such as the Employment Standards Act, Freedom of Information and Protection of Privacy Act (FIPPA), and Personal Information Protection and Electronic Documents Act (PIPEDA), where applicable.

To be enforceable, a confidentiality agreement must meet the essential elements of a contract:

1. Offer and acceptance

2. Consideration (something of value exchanged)

3. Intention to create legal relations

4. Certainty of terms

5. Capacity to contract

Additionally, Ontario courts will assess reasonableness, clarity, and scope when determining the enforceability of a confidentiality agreement.

When Should You Use a Confidentiality Agreement?

There are various situations where Ontario businesses should consider using a confidentiality agreement. Some common scenarios include:

1. Hiring Employees or Independent Contractors

Employers should have new hires—especially those in management, IT, sales, or R&D—sign confidentiality agreements to protect sensitive company information. While employment relationships already impose some implied duties of confidentiality, a written agreement strengthens and clarifies those obligations.

2. Engaging Consultants or Freelancers

When you bring in external professionals for projects involving confidential data, it’s essential to ensure they are legally bound not to misuse or share proprietary information.

3. Business Transactions and Due Diligence

In mergers and acquisitions (M&A), parties often exchange sensitive financial and operational data. NDAs are critical during the due diligence phase to prevent misuse of disclosed information, especially if the deal falls through.

4. Pitching to Investors or Partners

Startups frequently share business models, software ideas, or marketing plans with potential investors, strategic partners, or manufacturers. A confidentiality agreement can prevent the recipient from using or disclosing the idea without permission.

Key Clauses to Include in a Confidentiality Agreement

A well-drafted confidentiality agreement should be customized to the specific relationship and context. However, there are several key clauses that should be considered:

1. Definition of Confidential Information

Clearly outline what constitutes confidential information. This can include written, oral, digital, or physical data. A vague definition can make enforcement difficult.

Example:
“Confidential Information includes but is not limited to, trade secrets, business strategies, technical data, customer lists, pricing models, and any other proprietary information disclosed orally or in writing.”

2. Obligations of the Receiving Party

Spell out what the receiving party is required to do (e.g., keep information confidential, use it only for a specific purpose, limit access to authorized personnel).

3. Exclusions from Confidentiality

Not all information needs to remain confidential. Common exclusions include:

• Information that is publicly available

• Information already known to the receiving party before disclosure

• Information independently developed without use of confidential materials

• Information disclosed by law or court order

4. Term of the Agreement

Specify how long the confidentiality obligations will last. Some information may require indefinite confidentiality (e.g., trade secrets), while others may be bound for a fixed term, such as 2–5 years.

5. Remedies and Enforcement

Include clauses outlining the consequences of a breach, such as injunctive relief, damages, or termination of the business relationship. In Ontario, courts can award monetary damages and issue injunctions to prevent further disclosure.

6. Jurisdiction and Governing Law

To avoid ambiguity in case of dispute, state clearly that the agreement is governed by the laws of Ontario and that disputes must be resolved in Ontario courts.

Enforceability Challenges in Ontario

While confidentiality agreements are generally enforceable in Ontario, they can be struck down by courts if deemed unreasonable, overly broad, or ambiguous. For instance:

• An agreement that attempts to restrict disclosure of publicly available information

• A clause that places an indefinite restriction on non-sensitive information

• A definition of “confidential information” that is too vague or overly inclusive

Ontario courts often balance the protection of legitimate business interests with the freedom to contract and work. As such, courts are more likely to uphold confidentiality agreements that are specific, proportionate, and fairly negotiated.

Confidentiality vs. Non-Compete vs. Non-Solicit

It’s important not to confuse a confidentiality agreement with other restrictive covenants like:

• Non-Compete Clauses: Prevent the party from competing with the disclosing party for a certain time and geography.

• Non-Solicitation Clauses: Restrict the party from soliciting clients, employees, or vendors.

While confidentiality agreements are generally enforceable, non-compete and non-solicitation clauses face stricter scrutiny under Ontario law—especially in employment contexts. Ontario’s Working for Workers Act, 2021 bans non-compete clauses for most employees, making confidentiality agreements even more important as a protective measure.

Tips for Drafting a Strong Confidentiality Agreement

1. Tailor to the situation – Avoid generic templates. Customization ensures clarity and legal enforceability.

2. Avoid overbreadth – Limit the scope of confidential information to what is necessary.

3. Consider mutuality – In some cases, both parties will share sensitive data. Ensure mutual obligations if needed.

4. Have it reviewed by a lawyer – A legal professional can identify and correct gaps or risks in the agreement.

5. Keep copies and track disclosures – Maintain a record of when the agreement was signed and what information was disclosed.

Breach of a Confidentiality Agreement: What Happens?

If a confidentiality agreement is breached in Ontario, the non-breaching party may seek legal remedies such as:

• Injunctive relief – To stop the offending party from continuing the breach.

• Monetary damages – Compensation for losses incurred due to the disclosure.

• Accounting of profits – Where the disclosing party benefits from the misuse of confidential information.

In serious cases, a breach may also constitute breach of fiduciary duty, unjust enrichment, or even misappropriation of trade secrets, depending on the circumstances.

Confidentiality in the Digital Age

With the increasing reliance on digital communication and cloud-based storage, confidentiality agreements should address cybersecurity risks and include clauses about:

• Secure handling of digital files

• Restrictions on email or cloud sharing

• Mandatory encryption or password protection

• Notification procedures in case of data breaches

Data privacy regulations like PIPEDA may also impose additional obligations on businesses that collect or process personal information in Ontario.

Conclusion

Confidentiality agreements are indispensable tools for protecting the valuable information that drives your business forward. Whether you’re onboarding employees, sharing information with partners, or navigating a complex transaction, a well-drafted NDA can safeguard your competitive advantage and reduce legal risk.

At Hadri Law, we assist entrepreneurs, business owners, and professionals across Ontario in drafting, reviewing, and enforcing confidentiality agreements that align with their unique needs and strategic goals. If you’re unsure about the legal soundness of your current agreements—or need help creating new ones—reach out to our team for tailored advice and practical legal solutions.

Need help drafting a Confidentiality Agreement?
📞 Contact Hadri Law today at www.hadrilaw.com or book a free consultation to protect what matters most.