Introduction

Non-disclosure agreements (NDAs) are typically requested in various legitimate situations, and it's often reasonable to comply. The following are some common scenarios for NDA requests:

1. Employee NDA: Employers may request new hires to sign an NDA before commencing their employment.
2. Mutual NDA: Companies often ask potential business partners to sign NDAs before sharing confidential information.
3. Interview NDA: Job interviewees may be asked to sign NDAs before their interviews.
4. Inventor NDA: Inventors might require potential investors to sign NDAs before disclosing their inventions.

However, regardless of your specific situation, there are essential questions you should address before agreeing to sign an NDA.

Why Consider Signing an NDA?

Non-disclosure agreements (often referred to as confidentiality agreements) are a common aspect of business relationships, with more than one-third of U.S. employees being bound by them. Chances are you've been asked to sign an NDA because someone, be it an individual, company, or entity, is about to reveal sensitive information, and you'll be in a position to access and possibly disclose that information. In most cases, signing the NDA is a prerequisite for progressing in your current situation.

To begin, it's important to grasp what an NDA is and how it functions. Then, ponder these seven vital questions to ensure that you're not exposing yourself to unnecessary legal liabilities and that the agreement is equitable for both parties involved.

Do Both Parties Need to Sign an NDA?

When dealing with a unilateral NDA, also known as a one-way NDA, only the receiving party's information and signature are necessary. In this scenario, the emphasis is on protecting the disclosing party's sensitive information, and the receiving party is the one committing to keeping it confidential.

In contrast, different types of non-disclosure agreements call for signatures from both the disclosing party and the receiving party. The reason for this dual signature requirement is to ensure that both sides recognize and acknowledge the legal responsibilities they carry within the confidential relationship. This dual commitment helps establish a mutual understanding of the importance of protecting confidential information and creates a more balanced legal framework for both parties involved.

Questions to Ask Before Signing an NDA

 1. What type of information is to be kept confidential?

In our 2022 NDA survey involving over 5,000 participants, we discovered that 94% of disclosing parties typically consider all information shared under non-disclosure agreements as 'confidential information.' However, this broad terminology can be perplexing for signees.

While the NDA may not delve into specifics about the information to be kept confidential, it will usually categorize the types of information. For example, you might be asked to safeguard customer lists, business strategies, trade secrets, or other classes of sensitive data from disclosure.

To prevent unintentional leaks, it's crucial to have a clear understanding of the extent of what's considered confidential. If you have any uncertainties, it's wise to seek clarification from the disclosing party.

2. What information is considered “confidential”?

It's essential to be cautious about the language used in the non-disclosure agreement, especially if it encompasses information that you already possess personally or that's publicly available. An NDA with overly broad and vague language is unlikely to stand up in court and could increase your legal liabilities.

In general, non-disclosure agreements should typically exclude the following types of information:

• Public Knowledge: Information that is already in the public domain, such as information available on the internet (e.g., the location of Apple's headquarters).
• Prior Knowledge: Information that each party is already aware of before entering into the NDA (e.g., the name of a project both parties were aware of).
• Independent Development: Information that each party independently creates or develops.
• Permitted Disclosure: The NDA may permit the receiving party to disclose certain information to specific third parties, such as accountants or attorneys.
• Compelled Disclosure: If a court order or government agency legally mandates the disclosure of information, the NDA cannot prohibit compliance with such orders.

3. What steps are to be taken to keep it confidential?

Upon signing an NDA, you enter into a legally binding agreement that establishes your responsibility for maintaining the confidentiality of the information shared. This means you are legally accountable if any confidential information is unintentionally disclosed. To fulfill this obligation, there are typical practices for safeguarding confidential and proprietary data:

• Implementing access controls through mechanisms like passwords, firewalls, and encryption to restrict unauthorized access to confidential information.
• Safeguarding confidential documents by storing them in lockable storage cabinets to prevent physical access.
• Ensuring the permanent destruction of sensitive documents using shredders when they are no longer needed.
• Employing secure services for transmitting confidential documents when necessary to protect against interception during transit.

Complying with these practices is essential to meet your obligations and protect the confidential information covered by the NDA.

4. How long does the NDA last?

The Non-Disclosure Agreement (NDA) should clearly outline the key time-related aspects:

• Effective Date: When the obligation to protect confidential information begins.
• Disclosure Period: The timeframe during which the information must remain confidential.
• Termination: The provision specifying when the NDA comes to an end.

Our 2022 NDA survey found that over 80% of NDAs required signees to maintain confidentiality indefinitely (perpetually). While this practice is appropriate for safeguarding certain types of confidential information, such as closely guarded trade secrets like KFC's chicken recipe, it may not be necessary for all kinds of information.

Some information loses its significance over time. For example, financial data from a decade ago might no longer be considered confidential due to its reduced relevance. Maintaining confidentiality for extended periods can be mentally taxing and financially burdensome. Additionally, it could expose you to unnecessary legal liabilities if the duration seems overly long for the type of information involved.

It's advisable to check if any provisions in your NDA are perpetually enforceable and, if you have concerns, consult with a legal expert for guidance.

5. What additional restrictions are taken?

It's essential to thoroughly review the NDA, just as you would any legal document, to identify any supplementary provisions that might restrict your actions. These commonly encountered provisions include:

• Non-Compete Clause: If you have access to a company's proprietary information, the NDA may incorporate a non-compete clause, which limits your ability to work for a competing business to safeguard the company's competitive advantage.
• Non-Solicitation Clause: In cases where you receive client information from a company, the NDA may contain a non-solicitation clause, preventing you from enticing or soliciting clients for your personal gain.
• Non-Circumvention Clause: If you function as an intermediary in a company's supply chain, the NDA might include a non-circumvention clause, prohibiting you from bypassing the company and directly contacting its end customers.

According to our 2022 NDA survey, more than 60% of NDAs included non-compete and non-solicit provisions.

6. What are the consequences of breaching the NDA?

It's crucial to remember that an NDA is a legally binding contract, and a breach can lead to various repercussions. When reviewing the NDA, pay close attention to the consequences outlined for failing to maintain confidentiality. If the penalties appear disproportionately severe or unfair in comparison to the breach, it might be wise to hesitate before signing. Common consequences for violating an NDA, aside from facing potential legal action, may include:

1. Payment of Damages: Compensating the disclosing party for financial losses stemming from the NDA breach.
2. Punitive Damages: Facing punitive damages if the breach is found to be malicious in court.
3. Injunctive Relief: Being subject to court orders that prohibit specific actions.
4. Reputation Damage: The breach can harm your reputation, particularly if it involves sensitive or proprietary information, leading to potential loss of business opportunities.
5. Loss of Business Relationship: The deteriorating trust resulting from the breach can lead to the termination of the business relationship with the disclosing party.

Be cautious if you encounter a 'liquidated damages' provision. This clause specifies a predetermined amount of damages that the company or employer is entitled to if you breach the NDA, without the need to prove actual damages. However, the enforceability of such provisions can vary depending on jurisdiction and the specific language used in the NDA. If the provision is considered an unenforceable penalty rather than a reasonable estimate of actual damages, the party seeking damages may need to prove the actual losses incurred due to the breach.

7. Are There Any Aspects of the NDA That Make You Feel Uncomfortable?

Upon reviewing the NDA, if you come across any aspects that make you uneasy or raise concerns, it's advisable to consider requesting modifications to the document. While it's important to recognize that not every request for change may be accommodated, it's a reasonable step to address any issues you may have with the existing language in the NDA.

8. What are the Consequences of not Signing an NDA?

When you decline to sign an NDA, it can lead to the termination of the business relationship or opportunity you are involved in. For instance, an employer may choose not to proceed with hiring an individual who refuses to sign an employee NDA, as the agreement is often considered a standard requirement for employment.

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Conclusion

The act of signing a non-disclosure agreement can be likened to a double-edged sword. It reflects your commitment to safeguarding the disclosing party's confidential information, which, in turn, helps establish trust in the relationship. However, it also places a significant burden on you, entailing a fiduciary duty to uphold confidentiality.

In the end, the decision to sign an NDA should not be taken lightly. It requires careful consideration, including a thorough reading of the agreement, a comprehensive evaluation of the specific circumstances, and an assessment of potential risks. Balancing the benefits of trust-building and confidentiality with the responsibilities involved is essential before making this commitment.