NDA and Penalties

[#1]

I am discussing work with a customer. the contract has not yet been opened, the customer proposes to sign NDA. We are located in different countries - different jurisdictions. This is a generally standard document - but this section confuses me:

     Penalties.
In the case of any breach of the non-disclosure obligations detailed herein, the Party in breach shall pay a penalty of Euro 50,000 for each individual breach to the other Party.
                                                    

  Confidentiality of customer data is important to me, but this point worries me very much. What do you think about this? what alternative can I offer to the customer?

[#2 · Accepted solution]

How would the client enforce a term like that? Are you in the same jurisdiction? 

You are always free to simply tell a client that you want a certain part of the NDA removed, but almost invariably an NDA is worth the paper it is(n't) written on because neither party has the considerable financial means to enforce them.

[#3]

What do I think of an NDA that talks about me (as a freelancer) paying penalties?

I think it is silly.

It is VERY POSSIBLE that the person who asked you to sign this NDA did NOT write it and has NOT even read it. I have signed many, many NDAs as an Upwork freelancer. I'm certain that in most cases somebody from the client's legal department asked him to ask clients to sign these. The clients who hire me and ask me to sign NDAs usually don't care much one way or another about what is in the NDA.

You have many options:

a) just sign it; don't worry about it

b) modify the NDA to remove that clause, and then sign the modified NDA; do so without notifying the client

c) modify the NDA to remove that clause, and then sign the modified NDA: when you send the signed document, include a note to the client informing him that you removed the clause

d) send a note to the client saying that yes, you will be happy to sign the NDA, but they will need to remove that clause

e) send a note to the client telling them that you will be happy to work on the project, but that you will not be signing an NDA because you already treat every client's data as complete confidential

f) tell the client "thank you" for considering hiring you, but after seeing the NDA, you have decided to not work on their project

g) tell the client "thank you" for consideirng you, but you have decided to not work on the project; don't mention the NDA

[#4]

Andrii, as a guy who builds tech almost exclusively for top secret startups and signs NDAs on a daily basis on this platform and elsewhere, I have to say that I HAVE NEVER SEEN such a clause.

Be careful.

This is not a standard thing. Not a standard thing at all.

If this was my prospect, I'd run away. Really fast. Since I have plenty of other things going on, why take the risk?

It LOOKS LIKE someone wants to nail you in a contract with a very explicit clause and might try to trick you into breaching the agreement (the whole project could be bogus), then claim that amount as compensation. Why? Because the amount exceeds potential lawyer costs in most countries. Probably. Maybe. (I've never been in any legal trouble so I don't know... On the other hand, I know pretty early on when it stinks.)

But I'm not you. You know your situation better than anyone. You've talked with your potential client. You know that guy better than anyone here on this forum.

I can only advice to check with the client what the intention of that clause is and if it can be removed. It is strangely explicit regarding the amount.

It could an accident, it could be part of a template as suggested by others earlier, it could be anything.

Check with the client, but be 100% sure the contract is OK before you commit.

All the best and good luck. Let's hope it's nothing, actually.

[#5]

Andril,

In my line of work, NDAs are very common.

It makes no sense to have a document that proscribes one party from doing something without also including a penalty for that party doing that something.

For my part, I wouldn't balk at that particular provision, as I would never violate the confidentiality being required.

And, as others here have said, enforcement across country borders would be difficult for the client, and likely very costly, too. That's a plus in your favor, but just keeping the client's information confidential makes this provision all but irrelevant.

Talk to a lawyer about it, if it really worries you and the cost of the lawyer's opinion is worth the piece of mind (compared to the value of the project for you).

[#6]

The penalty clause may indeed be part of a template and not something inserted as an intentional trap. The clause may be innocent or nefarious.

The biggest problem with that penalty clause is the harm it will do to the client:

"I am trying to get an important project built. I keep interviewing excellent freelancers but after I ask them to sign the NDA that my legal department told me to use... they are all walking away. The only freelancers willing to work on my project are the bottom-of-the-pile ones. Why??"

[#7]

I have never seen an NDA that so precisely defines the penalty amount for breach of confidentiality, which either reflects the specific legal requirements, etc. in the client's country or the lack of understanding by whomever wrote the NDA.

NDAs I regularly see include less precise lawyerly language along the lines of -

"The parties acknowledge that monetary damages may not be a sufficient remedy for unauthorised disclosure of Confidential Information and that Disclosing Party shall be entitled, without waiving any other rights or remedies, to such injunctive or equitable relief as may be deemed proper by a court of competent jurisdiction."

[#8]

It is good that you carefully read the proposed NDA before signing it.

I received one recently and, upon checking it, I went back to the prospective client as 1) it was not specified what the applicable jurisdiction was; 2) it included a non-compete clause: I was not asking the client to disclose any of his customers at such a preliminary stage of discussion and certainly I was not willing to be bound by a non-compete agreement before even entering in a contract.

As far as I know, for non-compete agreements it is also possible to negotiate a higher service fee, by the way.  

I informed him that Upwork has confidentiality rules in place and that I always treat information from my work contacts as commercial-in-confidence.

The client gave up asking me to sign such NDA - a template he had taken somewhere without properly checking it, I believe.

[#9]

I have signed an NDA with these terms for a large company in California and I have no doubt, that if I had transgressed, even though I am in France, they would have sued! 

It would be professional suicide to break the terms of an NDA, even if a penalty clause cannot be enforced. There are other ways of punishing someone who does.