Residuals Clause Explained: Using What You Remember

A residuals clause permits the receiving party to use general knowledge, skills and ideas retained in unaided memory after an engagement ends — without that use counting as a breach of the confidentiality obligation.

It exists because of a problem no NDA can otherwise solve: you cannot unlearn things. An engineer who spends six months inside a client's architecture cannot arrive at their next role with that knowledge surgically removed. Without a residuals clause, ordinary professional development becomes a technical breach.

The typical wording

Notwithstanding anything to the contrary, the Receiving Party may use Residuals for any purpose. "Residuals" means information in intangible form retained in the unaided memory of persons who have had access to Confidential Information, where such persons have not intentionally memorised the information for the purpose of retaining it.

Two constraints do the work: unaided memory (no notes, no copies, no reference back to documents) and no intentional memorisation (you cannot deliberately commit the customer list to memory to escape the clause).

Why the two sides fight about it

Recipients want it because it makes the NDA workable. Consultants, agencies, contract developers and anyone who works across multiple clients in one sector need it, or every subsequent engagement carries a latent claim.

Disclosers resist it because in the wrong drafting it can swallow the agreement. If everything a person remembers is free to use, and people remember most of what matters, the confidentiality obligation reduces to a prohibition on photocopying.

Both positions are reasonable. The compromise is in the carve-outs.

The standard compromise

A well-negotiated residuals clause is bounded like this:

Excludes trade secrets. The residuals right does not apply to trade secrets, which stay protected regardless of how they are retained.

Excludes personal data. Nobody should be relying on memory to justify using someone's personal information.

Grants no IP rights. Critically, residuals should never operate as a patent or copyright license:

Nothing in this clause grants the Receiving Party any license under the Disclosing Party's patents or copyrights.

Without that sentence, a residuals clause can be read as permission to implement a patented technique because someone remembered it. That is the version disclosers are actually afraid of, and adding the sentence usually unlocks the whole negotiation.

Excludes specific enumerated categories — customer lists, pricing, source code — where the parties want belt and braces.

Where you will meet it

• Consulting and professional services agreements, where the consultant works sector-wide
• Software development contracts, where the same patterns recur across clients
• Mutual NDAs between technology companies, where both sides face the problem
• Employment agreements, occasionally, as a "general skill and knowledge" carve-out that performs the same function

That employment version is worth knowing about. A confidentiality clause with no carve-out for general skill and knowledge, applied to someone who worked in a field for five years, functions as a soft non-compete: any similar role risks breaching it. Asking for a general-skill carve-out is a much easier conversation than asking to delete the non-compete, and it addresses part of the same problem.

If there is no residuals clause

You are not automatically in breach for having a memory. Courts recognize the difference between misusing confidential information and applying general professional competence, and in most jurisdictions general skill and knowledge acquired through employment belongs to the employee.

But the absence of the clause means the argument happens after the dispute has started, rather than being settled in advance. That is the practical value of having one.

FAQ

What is a residuals clause?

A provision permitting the receiving party to use information retained in unaided memory — general knowledge and know-how — without breaching the confidentiality obligation. It excludes anything retained through notes, copies or deliberate memorisation.

Is a residuals clause dangerous for the disclosing party?

It can be, if drafted without limits. The standard protections are excluding trade secrets and personal data, and stating explicitly that the clause grants no patent or copyright license. With those, the risk is manageable.

Should I ask for a residuals clause?

If you work across multiple clients in the same sector — consultant, agency, contract developer — yes, and offer the standard carve-outs at the same time. If you are a one-off recipient of specific information, it is less important.

Does a residuals clause override the whole NDA?

No. It is an exception to the use restriction for a defined category of retained knowledge. Documents, copies, deliberately memorised information and trade secrets stay covered.

What if my employment contract has no general knowledge carve-out?

In most jurisdictions general skill and knowledge acquired through employment belongs to you regardless. But an over-broad confidentiality definition without that carve-out can function as an unstated non-compete, and asking for one is a reasonable and usually successful negotiation.

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