Non-disclosure agreements (NDAs) are common business documents. If you have been presented with one, you're likely wondering, "should I sign an NDA?"
The answer is that it depends. However, you should know that NDAs are widely accepted as a means of protecting sensitive information.
To understand when you should sign, here's some important information you should consider. But to make absolutely sure your rights are protected, consult with a seasoned NDA lawyer regarding your NDA.
What Is an NDA, Anyway?
An NDA is a legally binding agreement used to protect trade secrets and other types of confidential information. Individuals who sign these agreements are barred from discussing specific information outlined in their terms with unauthorized parties.
It is important to note that because NDAs (also known as confidential disclosure agreements and proprietary information agreements) are legally enforceable contracts, there are penalties associated with breaking them.
Therefore, NDAs should not be entered into lightly or without a complete understanding of their ramifications.
Common Situations in Which an NDA Is Used
NDAs are used in various situations and are universally accepted as legitimate tools for protecting a company's interests.
One common situation in which they are used is during the sale of a business. In this context, if a business owner is selling their company, they could find themselves at a great disadvantage if potential buyers come to possess certain knowledge and information about the business before the sale occurs.
However, these confidentiality agreements are most frequently used with employees who have access to a company's confidential information, such as trade secrets and client information.
Sharing this information with outside parties could harm a company and its business dealings. In these cases, an NDA protects business partners from the indiscretion of its employees.
5 Things to Do Before You Sign an NDA
1. Understand the Scope of the Agreement
Before signing a nondisclosure agreement, you must understand its scope to prevent you from running afoul of its terms.
What Types of Information Are You Required to Keep Confidential?
When you read through a non-disclosure agreement, you may notice that the specific information you are meant to keep confidential will not be explicitly laid out in great detail. Instead, the NDA will detail various broad categories of information that are to remain confidential.
For example, your non-disclosure agreement might list purchase orders, legal documents, client lists, and trade secrets as broad categories of information that must not be disclosed to unauthorized parties.
What Steps Must You Take to Keep It Confidential?
When you sign an NDA, you take on the responsibility of keeping specific types of information confidential. If a leak occurs or information is divulged inadvertently, you can be held responsible. Therefore, you should understand the steps you must take to uphold your duty of confidentiality.
Common steps you may have to take to honor your confidential relationship include:
- The use of passwords, firewalls, and encryption
- Utilizing lock boxes and lockable storage cabinets
- Using shredders and other similar tools
- Properly using secure servers and other secure document delivery methods
How Long Will the NDA Last?
Any nondisclosure agreement that you sign must also contain specific dates and times that detail when the agreement goes into effect (the effective date) and the duration of the period of confidentiality (the disclosure period). The nondisclosure agreement should also explicitly mention the date the agreement ends (the termination provision).
Without specific reference to these important periods, the confidentiality agreement will likely be considered invalid or overly broad. Therefore, it is important to ensure that any nondisclosure agreement you sign contains these important dates with sufficient specificity.
2. Make a Checklist of the Basic Formal Requirements
All nondisclosure agreements must have certain elements to be valid. By comparing your NDA to a checklist containing these elements, you can ensure that you are signing a valid legal agreement.
Is It One-Sided or Mutual?
One-sided non-disclosure agreements can be detrimental to one of the parties. If you have been given an NDA prepared by another party's attorney, you will want to review the terms to ensure it contains mutual terms that do not overly benefit one party over another.
In order to be positive that your rights are protected and that the terms are not overly one-sided, you should have an experienced NDA law firm review the contract for you and counter with more favorable terms if they find unfavorable clauses.
Are the Correct Parties Named?
You might be surprised to learn that incorrect parties are often named in NDAs due to clerical errors or confusion. When this occurs, serious delays and undesirable outcomes may arise.
Therefore, you should check the document to make sure that the relevant parties are indeed the ones named in the document. Additionally, make sure that your name or business entity's name is written correctly.
If personal names are used, make sure that all signatories are authorized representatives of the companies for which they are signing.
Are There Set Time Frames?
Review the document for an effective date for the agreement, including dates for each signature contained in the document. Without proper dates and time frames, the contract may be deemed without effect and will likely lead to confusion, delays, and loss of money and economic opportunity.
Is There a Non-Solicitation or Non-Competition Clause?
Analyze the document closely for any non-solicitation or non-competition clauses, which are often buried in dense contract language.
If you find clauses of this nature, make sure they are limited so they don't stifle your future business operations. If not, you can box yourself and your business into a corner and ultimately hamper economic growth.
Are There Specific Marking Requirements?
Marking requirements refer to the labeling of certain information contained in documents and communications as confidential or other similar types of labels.
It is common for non-disclosure agreements to have marking requirements. Some agreements have quite detailed marking stipulations, such as font, color, and text size. Knowing these requirements is vital to properly complying with the NDA.
3. Look for Vague Language in the NDA
Confidentiality agreements should contain specific terms and clauses instead of overly vague and broad language. Without properly specified terms, a non-disclosure agreement can work to significantly limit you, as well as expose you to liability for violating your NDA.
When reviewing your NDA, you want to make sure that the following types of information are not covered by the terms of the agreement:
- Public knowledge and publicly available information;
- Information you already possess;
- Information that you learned independently of the protected information;
- Information you came to learn through a third party.
In many cases, overly vague NDAs do not hold up in court. However, the hassle of litigating a vague non-disclosure agreement can be avoided by simply ensuring there are no overly vague terms before signing.
4. Understand the Consequences of Breaching the NDA
A typical confidentiality agreement will detail the penalties for breaching the contract. So before signing, you want to make sure you understand the ramifications of failing to adhere to the NDA's terms. Red flags in this context include punishments that are disproportionate to the breach.
Some commonly accepted penalties found in NDAs include:
- Payment of monetary losses caused by the breach of the NDA;
- Payment of punitive damages in the event your leak is considered malicious.
However, keep an eye out for liquidated damages provisions, which entitle a business or your employer to a predetermined amount of damages in the event of a breach.
Especially watch out for punitive measures that do not require the other party to demonstrate that they suffered any damages whatsoever.
5. Make Sure You Both Sign It and Get a Counter-Signed Copy
Last but certainly not least, make sure that you and the other parties sign the agreement and that both parties get copies of the finalized agreement. You might be surprised at how frequently this part gets skipped. After toiling with meticulous details, parties can sometimes rush to move on to the next phase of business.
But remember that if there aren't two signatures, the agreement is null and void. Take the time to make sure you have a complete document in your files.
What Are Your Options If You Don’t Want to Sign a Confidentiality Agreement?
If you're not happy with an NDA that you have been presented with, you do not have to sign it. You always have the option of negotiating for more favorable terms to be included in the agreement.
If your employer refuses to entertain any NDA negotiations, take this refusal as a red flag, especially if you are contesting questionable terms.
Don't forget that you can always walk away. No matter how much you want the job or the business, it is better in some situations to walk away than shackle yourself with an unreasonably burdensome NDA that negatively affects your future employment and business dealings.
Seek Professional Legal Advice Before Signing NDAs
NDAs are widely used in business dealings to protect companies and their valuable information.
But before signing an NDA, it is good business sense to have it reviewed by a business contract lawyer like Lawyer For Business to ensure that the agreement is fair to you as an employee, business owner, or representative.
For fast and reliable legal services from a seasoned NDA lawyer, contact us at your earliest convenience.
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