What Are Residuals Clauses?

What Are Residuals Clauses?  

Lawyers working through contracts are very often faced with contract clauses known as ‘residuals’ clauses. But what are they? Where are they found? and How Would Legal representatives deal with such clauses?

What Is A Residuals Clause?

Residuals clauses are predominantly found in Confidentiality Agreements and are clauses specifically drafted with the intention of permitting a party disclosing confidential information to avail itself of, share such information and ideas which are maintained as a seeming direct consequence of the constructive cooperation between the respective parties. Such residual clauses are usually advantageous to the party seeking to potentially disclose such information and disadvantageous to parties likely to be parties looking to communicate such information.     

What Can Be Considered Residual?

Legal professionals have examined the scope of these residual clauses and have made some eyebrow-raising discoveries regarding the meaning of ‘residual’ and have found that such provisions are drafted widely and loosely because they appear to be designed to be for the advantage of all the parties involved in proceedings. The term can mean gathered and stored confidential information:

• exclusively for certain reasons

• in the ‘unaided memory’ or after a specific period time following the implementation of a contractual arrangement

• the unaided memory can be defined as in the absence of any form, type or description of notes being taken to record what was said. This is narrowly defined and such information is only held in the brain capacity of the specific person 

• not containing any information which can be described as confidential and

• inadvertently and with no plan to dishonestly appropriate the information

Why Are Residual Clauses Added To Contracts?

Legal professionals often find a causal link between parties who are due to receive of such information seemingly deciding to resist during the negotiations in relation to the CDA by way of a residuals clause.     

How Can Legal Professionals Deal With Such Residual Clauses?

Legal professionals who find themselves experiencing some close encounters of the residual contract clause kind should be advising clients that their inclusion is optional for disclosing parties if they meet with resistance from the prospective receiving counterpart. If a party who potentially will be communicating such information seeks to mitigate the risk of a possible disclosing party proceeding through a complex negotiation process, many such parties legal professionals should be advising clients to incorporate a residual contractual provision into the contract as a matter of course.

Lawyers instructed by the potential receiving party may advise clients to strongly consider including residual clauses into their confidentiality agreements to reduce the likelihood of any future litigation emanating from the activities being carried out under the particular project and the related gaining of knowledge or the production of further information. 

From an employment law perspective all businesses employing a workforce could potentially request for a residual contract provision with a view to pacifying their concerns over the position where members of the particular business workforce end up put into jeopardy if this confidential  information is impacting on their capability to perform their individual work tasks. 

Parties should also be looking to consider:

• the clauses pertaining to interpretation, 

• the range of activities covered

• the time such residual clauses will expire 

• including different types of confidential information

• imposing constraints on important members of staff

• not accepting a residuals clause if the party has prevented information from being distributed amongst third parties

• including such provisions if the parties implement a one-way CDA and 

• remember to share essential information.   

Following these strategies will reduce the impact of contracts due to its inclusion.   

ASSESSING FIRMS

#Allen&Overy #CliffordChance #HogalLovellsInternational #Latham&Watkins #LinklatersLLP #NortonRoseFulbright #Slaughter&May #AddleshawGoddard #Ashurst #BakerMcKenzie #Bird&BirdLLP #CMS #DeloitteLegal #DLA Piper #CMS

SOURCES USED WHEN WRITING THIS ARTICLE

[SOURCE 1] Taylor, Thomas – Beware of “Residuals” Clauses in NDAs & M & A Transactions – Dentons – 18 October 2018 - Dentons - Beware of “Residuals” Clauses in NDAs for M&A Transactions

[SOURCE 2] EveryNDA – Trade Secrets Agreements v NDA - Trade Secrets Agreements v. NDAs - EveryNDA

[SOURCE 3] EveryNDA – The 5 Nos of Confidentiality Agreements - The 5 No’s of Confidentiality Agreements - EveryNDA