Non-Disclosure Agreement (NDA) — What Am I Signing?
An NDA is an agreement on non-disclosure of confidential information to which the parties or a party are granted access within the framework of a particular cooperation. Simply put, it is a document that imposes an obligation to keep certain information secret. What information is considered confidential, what constitutes its disclosure, for how long such obligations remain in effect, and what will happen if they are breached — all of this is set out in the text of the NDA.
We are frequently approached by developers who face the need to sign an NDA before starting work at a new company. And we usually hear: “It says here that even my university lab assignment, written on my home computer, will belong to this company! Is this a typical NDA? And what will happen if I sign it anyway?”
In this article we have compiled the most common and at the same time most onerous clauses found in Non-Disclosure Agreements, and we will also tell you about those provisions that simply do not apply in Ukraine — because they can never apply in Ukraine.
All Your Code Is Ours Now
Most IT product and outsourcing companies are non-residents of Ukraine and offer their employees NDAs (Non-Disclosure Agreements) drafted under the law of the country in which those companies are registered. With this in mind, Non-Disclosure Agreements may contain provisions that are not merely unusual for Ukrainian law, but entirely unenforceable — that is, provisions that simply cannot be implemented in Ukraine at all. We will discuss those later.
So what is most commonly written in an NDA?
“The general purposes of this Agreement are to cause all ideas and all inventions and other creations developed by the Employee while engaged by the Employer to be the sole and exclusive property of the Employer.”
That is, everything you create — or even merely think of and jot down on a scrap of paper — while working for your company will belong exclusively to that company, and not to you at all. The term “inventions” in non-disclosure agreements is not used in its primary sense; instead, a separate list is usually provided of everything that may be considered an invention. That means all ideas, “improvements,” discoveries, designs, techniques, formulas, and both object and source code — in short, everything.
Even three lines of code that will never be used anywhere will belong to the employer. Interestingly, it is typically written that the inventions will belong to the company regardless of whether they were created independently or jointly with someone else.
So keep in mind that when someone offers to involve you in an interesting project, you are taking a risk if the company’s lawyers somehow find out about it. And of course, a very common clause reads: “All inventions belong to the company, even those created not on a work computer.”
Remember the plot of Silicon Valley with the main character Richard? He sent his home computer in for repair and briefly tested his program on a work computer. As a result, his brilliant data compression method was nearly recognized by the court as the property of his former employer, because work equipment had been used in the creation of the program — even though everything was already working perfectly at that point.
“The Employee hereby assigns to the Employer, and agrees to assign to the Employer in the future, all the Employee’s Ownership Interest in any and all such Intellectual Property, whenever any such property is created.”
That is, the employee transfers — and agrees to transfer in the future — their share in any intellectual property they create. This clause typically also states that the employee must assist the employer in every way in acquiring such intellectual property. And most interestingly — even after the termination of this Agreement.
But right after such a clause, a section titled “Power of Attorney” is often inserted. It provides that if the employer, after “making sufficient efforts,” is unable to obtain your signature to formalize intellectual property rights in their name, you automatically grant them a power of attorney to take actions on your behalf in order to formalize all necessary rights — including signing documents on your behalf.
Will Such a Power-of-Attorney Clause Be Enforceable in Ukraine?
For this we look at the articles of the Civil Code (hereinafter — the CC) that establish the requirements for a power of attorney. Pursuant to Art. 244 of the CC, a power of attorney is a written document issued by one person to another for the purpose of representation before third parties.
A power of attorney in the form of a clause in an NDA is entirely a written document, so that requirement is satisfied. However, pursuant to Part 1 of Art. 245 of the CC, the form of a power of attorney must correspond to the form in which, pursuant to law, the relevant transaction must be executed.
Therefore, if the employer wishes to take actions on your behalf that require, for example, notarization (such as selling an apartment), but the power of attorney embedded as a clause in the NDA has not been notarized — it will not conform to the required form of the transaction, and even if the transaction is executed, it will be invalid (because the employer lacked the authority to execute it, which is a ground for invalidity).
Show Me What You’ve Been Scribbling in Your Notebook
A typical NDA clause gives the employer the right to conduct inspections of the employee’s activities at their workplace (usually written as “at Employer’s premises”). That is, while the developer is working “on the employer’s premises,” the employer may come in and not merely review what you have been coding all day. What’s more, they may even read your work notebook (literally written as “notes”) after you have already left for the day.
Do You Promise Not to Work for Competitors?
Such a section is mostly phrased as “Promise not to compete” and relates to the employee’s solemn undertaking, upon signing the NDA, not to participate — for one year (or however many years the employer sees fit) after the termination of the Agreement — in any business that in any way may compete or conflict with the company’s current business. Let us return to Silicon Valley.
Remember how in one of the last episodes of the second season, the court found that the NDA that main character Richard had signed with the company Hooli, where he previously worked, contained a provision obligating him not to compete with Hooli’s business. The court held that such a provision was “unenforceable” under California law — that is, incapable of being given effect — because everyone has the right to choose their occupation, the right to work, and so on.
In Ukraine, such a clause in an NDA would be invalid, as its content would contradict Art. 43 of the Constitution and Art. 2 of the Labor Code, under which everyone has the right to work. And pursuant to Part 1 of Art. 203 of the Civil Code, the content of a transaction may not contradict the Code, other acts of civil legislation, or the interests of the state and society and its moral foundations. So do not be afraid when signing an NDA containing such a clause — if the Agreement is governed by Ukrainian law, you have nothing to worry about.
What Governs NDAs in Ukraine?
What does an NDA protect? Trade secrets.
It is therefore governed by the provisions of the Civil Code that define intellectual property rights in trade secrets (Articles 505–508).
What does an NDA protect against? Unfair competition.
It is therefore also governed by the provisions of the Law “On Protection Against Unfair Competition,” in which the legislator explains what constitutes disclosure of a trade secret and its unlawful use
Are There Court Cases in Ukraine Involving Disclosure of Trade Secrets?
After a brief search, we were unable to find any court cases in Ukraine involving programmers for breach of NDA terms — although case law on judicial protection of trade secrets in Ukraine does generally exist.
As is well known, carrots are a source of carotene. With that in mind, an oil called “Karatelka” (“The Punisher”) does not sound quite so strange. We bring this up because back in 2006, the Commercial Court of Kyiv heard a case brought by an enterprise that had invented and was actively producing a β-carotene solution from carrots in oil under the name “Karatelka,” against another enterprise that was unlawfully manufacturing the same product.
A few years earlier, the plaintiff had received the secret of this miraculous oil from another enterprise under a know-how transfer agreement (which the court refers to as a trade secret). Under that Agreement, no one else had the right to produce this carrot-based oil. But then, in a mysterious way, the same oil with the same composition — and even the same name — found its way into the defendant’s factory in Brovary, and once it got into production there, it could not be stopped, and was being manufactured quite successfully.
The plaintiff was not pleased and went to court for protection. The court said the plaintiff had done everything right and ordered the unscrupulous carrot oil enthusiasts to cease production of the β-carotene solution. For those interested — case No. 324/13-06 dated November 13, 2006.
So if you are unsure whether to sign an NDA or simply afraid of ending up in bondage — write to us and we will be happy to review your NDA and tell you whether you have anything to worry about.
