Inevitably, in your professional career, your employer will require you to sign a Non-Disclosure Agreement to protect their confidential and proprietary information. You may even be presented with one in a job interview, with little time to reflect and think.
Don’t panic, it’s all a part of doing business.
Consider these 7 important tips before signing an employee NDA, to ensure you don’t handcuff yourself with undesirable, long-lasting obligations that could cause future hassle, or even an unwanted lawsuit.
What is an Employee NDA?
A Non-Disclosure agreement is a written document creating a legally binding relationship between two parties, specifying what information one or both parties consider confidential, and the prohibition of the other party from disclosing it.
An employer requires an NDA because it allows their business to operate like a well-oiled machine.
An effective NDA yields a free-flow of proprietary information within an organization, crucial for maximizing business performance, without the fear of such information becoming publicly available.
Companies strive to keep confidential such things as trade secrets, client lists, technologies, marketing and design strategies, and proprietary relationships. Understand that you are not being asked to sign an NDA because the company doesn’t trust you, you are being asked to sign an NDA because it is an important part of doing business efficiently and carefully.
Whether you are a senior executive at a company, independent contractor, or a run-of-the-mill employee who is privy to trade secrets, you are likely required to sign an NDA.
You should be prepared to handle it with a calm and collected approach to ensure your best interests are protected.
7 Important Things to Consider Before Signing
1. Understand the document’s scope
Consider what the NDA is asking you to do and for how long.
What type of information are you required to keep confidential? What steps must you take to keep the information confidential?
How long will the NDA last? The document’s scope provides a framework for what you can expect to keep confidential and for how long.
2. Look for broad language
Make sure the definition of confidential and proprietary information is properly defined. Be wary of broad language that seeks to unreasonably restrict your ability to disseminate information.
There are four important categories of information you must seek to exclude from your NDA.
- Information already known by you or information you may become aware of on your own.
- Information readily available in the public domain
- Information received from a third party
- Information you can prove you arrived at independently, without using the protected information described under the NDA.
3. Liquidated damages provision
If you see a liquidated damages provision, run.
A liquidated damages provision ensures if you breach the NDA, the employer will be entitled to a specific amount of damages without ever having to prove there you caused actual damage to them.
Liquidated damage provisions are often repressive and violate public policy.
4. What the consequences of breaching it are
Look to see if there are any unusually harsh and unfair punishments should you breach the NDA. If the punishment is disproportionate to the breach, hold off on signing. It is also important you make sure your NDA isn’t one-sided. Beware of an NDA that imputes responsibility on you for breaches by 3rd parties, including fellow colleagues or other employees, without a reciprocal provision in place.
5. The timing of your signature
All contracts require consideration; a bargained for exchange of something of value between both parties. Most NDAs are signed at the start of employment, so your employment is considered standalone sufficient consideration.
However, should you be asked to sign your employee NDA after commencing employment, you may be entitled to “new and fresh” consideration. Most states require new consideration when an employee is required to sign an NDA after commencing work. Fresh consideration can come in the form of a bonus, additional vacation days, a promotion, or other employee benefits.
6. Trust your instincts
If something smells fishy, it probably is. Although it may seem daunting, it doesn’t take much time or money for an attorney to have a quick glance at your contract. A small fee and inconvenience now, could save you years of hassle, hardship, and a potential lawsuit. If you really have a sinking feeling in your stomach about the contents of the NDA, scrap it altogether and walk away.
7. You can negotiate
You can always ask to modify the document if you find something you think is unjust or out of place. It can’t hurt to ask, and companies are more likely to allow for changes to last-minute or surprise NDAs. Henry Clay so infamously stated, “A good compromise is when both parties are dissatisfied.” With any good contract, you should strive to find middle ground with the other party, so don’t be afraid to speak up, ask for clarification, or express any concerns you may have about the terms and provisions of the agreement.
Non-Disclosure Agreements are necessary for any company looking to protect confidential and proprietary information. Don’t open yourself up to unnecessary litigation for accidentally disclosing information you were privy to ten years and two jobs ago.
Although NDAs can seem overwhelming and overly-restrictive, you can better protect your future financial and legal obligations by keeping these 7 tips in mind the next time you are presented with one.