Can a buyer use NDA information to compete with me later?

A non-disclosure agreement (NDA) is a contract, so the first place to look is its own wording. Two questions matter. What is the buyer allowed to use your information for, and for how long? An NDA that only stops the buyer from telling others is a different document from one that also limits the buyer to evaluating your business. Read the use clause before you send anything beyond a basic summary, and see what to share and when.

What the NDA itself should say

Check whether the agreement limits use of your information to evaluating the purchase, whether it names what counts as confidential, and whether it says what happens to your documents if the deal does not close. Ask whether it covers the buyer’s advisers and financing sources, and whether it has an end date. Competing against you is a separate matter. If you want the buyer restrained from doing that, ask whether a separate non-competition or non-solicitation clause is in the NDA or is something you would need to negotiate.

Where privacy law steps in

The privacy part of PIPEDA, the federal privacy law, applies in respect of personal information, not your pricing, methods or supplier terms. Under PIPEDA section 7.2(1), in addition to the circumstances in subsections 7(2) and (3), organizations that are parties to a prospective business transaction may use and disclose personal information without the individual’s knowledge or consent if two conditions are met. First, they must have an agreement requiring the organization that receives the information to use and disclose it solely for purposes related to the transaction, to protect it by security safeguards appropriate to its sensitivity, and, if the transaction does not proceed, to return it or destroy it within a reasonable time. Second, the information must be necessary to determine whether to proceed with the transaction and, if the decision is to proceed, to complete it. Section 7.2(4) says this does not apply to a transaction whose primary purpose or result is buying, selling or leasing personal information.

Quebec has its own rule

Quebec’s private-sector privacy Act has its own section on commercial transactions. Where communicating personal information is necessary for concluding a commercial transaction, a person carrying on an enterprise who intends to be a party may communicate it to the other party without the consent of the person concerned, but an agreement must first be entered into. In it the other party undertakes, among other things, to use the information only for concluding the transaction and to destroy it if the transaction is not concluded or if using it is no longer necessary for concluding the transaction. Confirm which privacy law applies to your customer and employee records; the Privacy Commissioner of Canada’s PIPEDA page links to guidance on which privacy law applies.

What to do before you share

• Share the most sensitive details, such as customer names, late in the process.
• Ask for an NDA that limits use to evaluating the purchase.
• Ask for return or destruction of documents if the deal does not close.
• Ask a lawyer whether a non-competition clause is appropriate and enforceable where you operate.