Are NDAs legally binding in Canada? A guide for employers

Many employers hiring in Canada rely on non-disclosure agreements (or NDAs) to protect sensitive company information. But NDAs are facing intense scrutiny: lawyers in Canada are pushing for new rules to reform NDAs, to stop them from being used to silence whistleblowers or workers who have experienced harassment, discrimination, or abuse.

In light of all of this, employers are asking: Are NDAs enforceable in Canada? And how can you use NDAs to protect your company and its global employees? Read on to learn more (note: our guide is for informational purposes, and isn’t intended to provide legal advice).

What is an NDA?

A non-disclosure agreement (NDA) is a legal contract that prohibits one or more parties from sharing proprietary or confidential information with third parties.

NDAs can be used in a variety of contexts. In the workplace, NDAs are used to protect trade secrets and other information from being shared with competitors. However, some NDAs—which have prevented an employee from speaking out about harassment or abuse, often after a settlement agreement—are facing scrutiny in Canada and around the world (more on that later).

Are NDAs enforceable in Canada?

The short answer is yes—Canadian courts have, for the most part, held up NDAs as enforceable. However, there are a few important caveats:

• NDAs must meet requirements for being reasonable and of legitimate business interest (we'll explain those requirements in more detail below).
• Some cities and provinces are considering, or have passed, legislation that prohibits NDAs in certain circumstances, including abuse, harassment, and sexual misconduct.

You can generate NDAs, offer letters, and any other documents you need, then easily send them out for e-signature—all through Rippling.

Three things you need to know about NDAs in Canada

1. There are different types of NDA

In Canada, there are two types of NDAs you're most likely to encounter:

• Mutual NDAs, also known as bilateral or two-way NDAs, are a type of agreement where all parties in the NDA are contractually bound to share certain information with one another, but no one outside the agreement. Mutual NDAs are often part of mergers, acquisitions, and similar kinds of business deals.
• Non-mutual NDAs, also known as unilateral NDAs, work one way, requiring one party in the agreement to receive sensitive information without leaking or sharing it with anyone else. These types of NDAs are more common in employer-employee relationships, and are often signed by a new employee when they are hired.

2. There are essential components to make NDAs enforceable

These are the things that an NDA should include to be comprehensive and enforceable:

• Clear indication of the parties involved. This should include their names and roles, including who will be sharing and receiving confidential information (i.e. the disclosing party and the receiving party) and who they will be sharing such information with.
• Definition of confidential information. This should include the general topic of information covered by the NDA, as well as the scope of information that's covered. It should also define how confidential information is shared; for example, is written information considered confidential but oral information is not?
• Exclusions from confidentiality. If there are any cases when parties in the NDA are allowed to disclose confidential information (for example, after it's been made public), those should be included in the contract.
• Terms of the agreement. How long does the NDA last? For employment NDAs, they typically last for the duration of the working relationship, but they can last longer.
• What will happen if the NDA is breached. It's a good idea to include provisions that outline any injunctions, damages, or other consequences for breaching the NDA.

3. There are three legal requirements for NDAs in Canada

For NDAs to be enforceable in Canada, the courts have determined they need to meet three requirements. They must be:

• Reasonable. The NDA cannot place an undue burden on someone not to share information.
• Specific. The NDA needs to clearly define the kind of information that's confidential and the time frame during which it cannot be disclosed.
• Not outside the public interest. Certain information can't be covered by an NDA. For example, a company can't require employees to sign an NDA to prevent them from disclosing criminal activity by the company. More recently, parts of Canada have made it illegal to require an NDA as part of a legal settlement in cases of harassment, discrimination, and sexual abuse.

When would an employee or contractor sign an NDA?

It's common for employees and contractors in Canada to sign NDAs during their onboarding or when they start a new work contract. An NDA may also be included as a confidentiality clause in a new hire's offer letter or employment contract.

Frequently asked questions about NDAs in Canada

Are NDAs enforceable in Canada?

By law, an NDA is considered a legally binding contract in Canada. Canadian courts have historically upheld them as long as they meet the legal requirements above.

However, it's important to note that employment laws and other regulations that affect NDAs can change—and legislation around NDAs in particular is becoming more common in Canada, changing the ways they can be used by employers.

Are NDAs enforceable overseas?

The enforceability of a non-disclosure agreement (NDA) in Canada overseas depends on the specific terms of the agreement, as well as the laws of the country where the NDA is being enforced.

In general, an NDA that is valid and enforceable in Canada may also be enforceable overseas, particularly in countries that recognize and enforce foreign judgments. However, there are many factors that can affect the enforceability of an NDA in a foreign jurisdiction, such as differences in legal systems, cultural norms, and public policy considerations.

What information can be covered by an NDA?

In Canada, information that's considered confidential or proprietary can be covered by an NDA. This includes:

• Trade secrets and proprietary information. This can include things like manufacturing processes, formulas, designs, and technology that are unique to a company and provide a competitive advantage.
• Financial information, including confidential financial statements, budgets, sales figures, and projections.
• Customer information, like customer contact information, purchasing history, and preferences.
• Employee information. This can include information about employees, such as their salaries, job duties, and performance evaluations.
• Intellectual property, which can include patents, trademarks, copyrights, and other types of intellectual property that are owned by a company.

Any information that's publicly known or part of the public domain cannot be covered by an NDA. NDAs also aren't allowed to prevent whistleblowers from disclosing criminal activity by a company.

While legal proceedings and settlements can sometimes be covered by an NDA, they're prohibited in some cases. In 2022, Prince Edward Island became the first province in Canada to outlaw non-disclosure agreements in cases of workplace harassment, discrimination, abuse, and sexual misconduct. Now, several other parts of Canada are considering following suit.

When should you use an NDA?

Common situations to use an NDA in Canada include:

• When an invention or business idea is being presented to a potential partner, investor, or employee
• When financial information is being shared with a potential partner or investor
• When a new product or technology is being shown to a prospective buyer
• When sensitive company information is shared with an employee or contractor
• When access to proprietary or confidential information is given to employees or contractors
• When customer information is shared with employees or contractors

Rippling makes it simple to create and send out an NDA as part of a job offer package.

Is an NDA the same as a confidentiality agreement?

Yes. Non-disclosure agreements may also be called confidentiality agreements (CAs), confidential disclosure agreements (CDAs), proprietary information agreements (PIAs), or secret agreements (SAs).

Is an NDA the same as a non-compete agreement?

No. An NDA is different from a non-compete clause or non-solicitation agreement. While both types of agreements are used to protect a company's interests, they serve different purposes.

A non-compete agreement is a contractual agreement between an employer and employee that restricts the employee from engaging in certain competitive activities for a specified period of time after leaving the company.

The purpose of a non-compete agreement is to prevent a former employee from taking knowledge, skills, and business opportunities acquired during employment and using them to compete with your company.

In general, non-compete clauses and non-solicitation agreements are seen as a restraint of trade and are therefore more difficult to enforce in Canada. To be enforceable, these types of clauses must be designed to protect a legitimate business interest of the employer, such as confidential information, customer relationships, or trade secrets. The employer may also be required to provide consideration to the employee in exchange for agreeing to the non-compete clause or non-solicitation agreement. Consideration can take the form of a signing bonus, a promotion, or other benefits.

Is an NDA ethical?

Yes—NDAs are generally used to protect employers by preventing contractors and employees from sharing trade secrets and other proprietary information with competitors.

However, some NDAs are under the spotlight in Canada. One notable example is Hockey Canada, which made headlines after it came to light that a woman who sued the organization, claiming she was sexually assaulted by several Canadian Hockey League players, was asked to sign an NDA as part of her settlement. Hockey Canada ended up dropping the NDA requirement from the woman's settlement before appearing before a parliamentary committee that was investigating the incident. The case had ripple effects, however, and now a number of Canadian provinces and cities have passed or are considering legislation to limit the use of NDAs in cases of sexual assault, sexual harassment, discrimination, and other workplace abuse.

Benefits of NDAs in Canada

An NDA can help protect employers' confidential information and proprietary assets, which can be crucial to a company's success in today's highly competitive business environment. Benefits include:

• Legal protection for confidential information, trade secrets, and other proprietary information that is disclosed to another party.
• Prevention of unauthorized disclosure of confidential information by requiring the recipient to keep the information confidential and not to disclose it to third parties.
• Legal recourse to seek damages and other remedies under the terms of the agreement if a recipient of confidential information breaches the NDA.
• Protection of intellectual property, such as patents, trademarks, and copyrights.

What happens if an NDA is breached?

The penalties for breaching an NDA can vary, depending on the severity of the breach, what penalties are outlined in the NDA, and whether the breach violated any laws. But an NDA is a legally binding contract, so any breach means legal action can be taken against the violating party.

Run your global workforce in Canada with Rippling

With Rippling, you can onboard employees and contractors in Canada in just 90 seconds. ​​Generate NDAs, offer letters, and any other documents you need, then easily send them out for e-signature.

Plus, you can pay all of your employees and contractors in Canada, and around the world, without waiting on transfers or currency conversion.

Rippling allows you to manage HR, IT, and Finance in one unified system—and automate your global compliance work. See Rippling.

Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.