Negotiating Representatives Clauses

💡 Negotiation Overview

The Representatives clause is often overlooked during NDA negotiations, but it can significantly impact your ability to operate. Before accepting any NDA, carefully review who qualifies as a Representative and what conditions apply to disclosure.

The key tension is between the disclosing party's interest in limiting the spread of confidential information and the receiving party's need to involve the right people to evaluate and pursue the business opportunity.

⚖ Opposing Perspectives

🎯 Recipient Goals

Broad definition covering all professional advisors
Include contractors and consultants explicitly
Allow disclosure to affiliates without prior consent
Permit disclosure to potential financing sources
Recognize existing professional confidentiality duties
Limit liability to negligent supervision only
Flexible need-to-know standard

🔒 Discloser Goals

Narrow definition limited to employees and in-house counsel
Require prior consent for outside advisors
No automatic disclosure to affiliates
Approve form of confidentiality agreement
Strict liability for Representative breaches
Stringent need-to-know requirement
Right to audit Representative compliance

👥 Scope of Representatives Definition

The most fundamental negotiation point is who qualifies as a Representative. Review this checklist carefully:

Standard Categories (Usually Included)

✓
Directors and Officers: Almost always included. These individuals make corporate decisions and need access.
✓
Employees: Core workforce. Usually subject to need-to-know limitation.
✓
In-House Legal Counsel: Standard inclusion for legal evaluation.
✓
In-House Accountants: Typically included for financial analysis.

Contested Categories (Negotiate Carefully)

?
Outside Legal Counsel: Often requires specific carve-out or consent. Push to include as standard.
?
Outside Accountants/Auditors: May require consent. Argue for inclusion based on professional duties.
?
Financial Advisors/Investment Bankers: Often contested in M&A contexts. Critical for deal evaluation.
?
Contractors and Consultants: Frequently excluded. Push for inclusion with appropriate safeguards.
?
Affiliates: Often heavily negotiated. Parent/subsidiary access may be essential.
?
Potential Financing Sources: Usually requires consent. Negotiate pre-approval if financing is likely.

Practical Tip: Before signing, list every person and entity who will actually need access to the confidential information. Then verify each one qualifies under the Representatives definition. If gaps exist, negotiate broader coverage or a streamlined consent process.

🔒 Contractors and Consultants

Whether contractors qualify as Representatives is one of the most important practical issues. Many companies rely heavily on contractors for core functions, including technical evaluation of potential deals.

Arguments for Including Contractors

Modern businesses increasingly rely on flexible workforces
Technical specialists may be contractors rather than employees
Contractors can be bound by confidentiality agreements equivalent to employees
Excluding contractors impedes legitimate business evaluation

Arguments Against (Discloser Perspective)

Less control over contractor behavior compared to employees
Contractors may work for competitors or multiple clients
Harder to enforce confidentiality obligations
May represent back-door access for unintended parties

Compromise Approaches

Approach	Description	Acceptability
Full Inclusion	Contractors included same as employees	Recipient-favorable
Written Agreement	Contractors included if bound by confidentiality agreement	Common compromise
Approved Form	Contractors included if using discloser-approved confidentiality form	Discloser-favorable
Prior Notice	Contractors included after notifying discloser (no consent needed)	Balanced
Prior Consent	Contractors require discloser consent before disclosure	Discloser-favorable

🏢 Affiliates and Subsidiaries

The treatment of affiliates (parent companies, subsidiaries, and commonly-controlled entities) is frequently contested. A receiving party may need to involve its parent company in decision-making or share information with a subsidiary that will actually implement the transaction.

Key Negotiation Points

Definition of Affiliate: Typically based on control (direct or indirect ownership of 50%+ voting shares). Consider whether minority-owned entities should be included.
Automatic vs. Consent: Does affiliate disclosure require prior consent, or is it automatic if affiliates are bound by confidentiality?
Responsibility: Is the receiving party strictly liable for affiliate breaches, or only if it failed to exercise reasonable care?
Competitors: Discloser may want carve-out excluding affiliates that are competitors.

Common Compromise: Allow disclosure to affiliates without prior consent, provided they are bound by confidentiality obligations at least as protective as the NDA, and the receiving party remains responsible for their compliance.

🔍 Need-to-Know Requirements

Almost all Representatives clauses limit disclosure to those with a "need to know." However, the strictness of this requirement varies significantly.

Spectrum of Need-to-Know Standards

Standard	Language	Strictness
Loose	"as the receiving party deems appropriate"	Maximum flexibility
Reasonable	"reasonably necessary for the Purpose"	Standard/balanced
Direct Need	"direct need to know for the specific Purpose"	Moderately strict
Demonstrable Need	"demonstrable need to know specific items"	Very strict
Minimum Necessary	"only the minimum information necessary"	Maximum restriction

Practical Impact: A very strict need-to-know standard may prevent efficient internal collaboration. If the standard is "demonstrable need to know specific items," you may need to justify each disclosure, which can impede fast-moving deals.

⚖ Liability for Representative Breaches

This is a critical but often overlooked issue: What happens if one of your Representatives breaches the NDA? The answer depends on the liability standard in the agreement.

Liability Standards Compared

Standard	When Liable	Favors
Strict Liability	Always liable for any Representative breach, regardless of fault	Discloser
Reasonable Care	Liable only if failed to use reasonable care in selecting, instructing, or supervising Representatives	Recipient
Best Efforts	Liable unless used "best efforts" to ensure compliance	Middle ground
Guarantor	Guarantees Representatives' performance; liable as if breach was your own	Discloser

Negotiation Strategy: If you must accept strict liability, push for limitations elsewhere: narrower Representative definition, lower damages cap, or shorter survival period.

💡 Tactical Negotiation Tips

1
Map Your Actual Needs: Before negotiating, identify every person and entity who will need access. Use this to drive your negotiation priorities.
2
Leverage Professional Duties: Argue that lawyers, accountants, and other licensed professionals are already bound by professional confidentiality rules, making additional contractual requirements redundant.
3
Request Consent Process: If consent is required for certain disclosures, negotiate a reasonable process: short response time (5 business days), consent not unreasonably withheld, deemed consent if no response.
4
Negotiate Carve-Outs: If the definition is narrow, negotiate specific carve-outs for critical categories (e.g., "and the receiving party's outside legal counsel engaged for purposes of this transaction").
5
Address Existing Agreements: If your contractors already have confidentiality agreements, negotiate language that recognizes these existing obligations as sufficient.
6
Push Back on Approved Forms: If the discloser wants to approve the form of confidentiality agreement for Representatives, this can cause significant delays. Negotiate for a standard of "confidentiality obligations at least as protective" instead.

⚠ Red Flags to Watch For

Employees-Only Definition: If Representatives are limited to employees, you cannot share with any outside advisor without consent. This is often unworkable.
Discloser-Approved Forms: If every Representative must sign a discloser-approved confidentiality agreement, implementation becomes extremely burdensome.
No Affiliate Coverage: If affiliates are completely excluded, parent company decision-makers may not be able to participate.
Strict Liability + Broad Definition: This combination is particularly risky - you are strictly liable for anyone in a broad category.
Indemnification for Representative Breaches: An indemnification obligation on top of strict liability can result in uncapped exposure.