Should you sign that NDA? Here's why (and why not) to sign.

There are numerous legitimate reasons you may have been asked to sign a non-disclosure agreement (NDA) — and usually, there’s no issue with signing one. The most common situations include:

Employee NDA: Employers asking new employees to sign before starting work

Mutual NDA: A company asking potential business partners to sign before exchanging confidential information with each other

Interview NDA: Employers asking interviewees to sign before interviewing

Inventor NDA: An inventor asking potential investors to sign before presenting the invention

But no matter your situation, there are some questions you should ask and answer before signing an NDA.

Table of Contents

Why Sign an NDA?
Questions to Ask Before Signing an NDA
To Sign or Not to Sign

Why Sign an NDA?

NDAs (interchangeable with “confidentiality agreements”) are common in business relationships—over one-third of U.S. employees are bound by them. You’ve likely been asked to sign an NDA because the individual, company, or entity is about to disclose sensitive information, and you’ll be in a position to learn about and leak that information. In all likelihood, you’ll have to sign the NDA in order to move to the next steps of your individual situation.

For starters, understand exactly what an NDA is and how NDAs work. Then, answer these seven critical questions to ensure that you’re not putting yourself at more legal liability than necessary and that the deal is fair for both you and the other party.

7 Questions to Ask Before Signing an NDA

1. What type of information are you required to keep confidential?

In 2022, our NDA survey with over 5,000 participants revealed that 94% of disclosing parties deemed all information disclosed as “confidential information” in their non-disclosure agreements. Nevertheless, such vague language can create confusion for signees.

While the information you should keep confidential won’t be spelled out in detail, the NDA’s language will list categories of information. For instance, you might be asked to keep customer lists, business plans, trade secrets, or other categories of sensitive information confidential.

Without knowing which information you’re required to remain confidential, you’ll put yourself at risk of accidentally leaking the information. Make sure you clearly understand the scope of confidential information; reconfirm with the disclosing party if you have doubts.

2. What information is considered “confidential”?

Be wary of language in the non-disclosure agreement that doesn’t relate to the information you already know personally or publicly. Otherwise, you’ll handcuff yourself and open yourself up to greater liability — although an NDA with language too broad and too vague is unlikely to hold up in court.

In general, the following types of information should be excluded from non-disclosure agreements:

Public knowledge – Information that is already in the public domain, like on the Internet (i.e. location of Apple headquarters).
Prior Knowledge – Information each party already knows before entering the NDA (i.e. the name of a new project the parties will work together for).
Independent Development – Information independently developed by each party.
Permitted Disclosure – The NDA can permit the receiving party to disclose information to certain third parties, like CPAs or attorneys.
Compelled Disclosure – If a court order or government agency requires the disclosure of information then the NDA cannot prevent them from doing so.

3. What steps must you take to keep it confidential?

When you sign an NDA, a confidential relationship is established, which makes you responsible for keeping the information confidential. This means you’re legally liable if confidential information gets leaked (even if it’s inadvertent). Some common practices for protecting confidential and proprietary information include:

Controlling access to confidential information with passwords, firewalls, and encryption
Keeping confidential documents in lockable storage cabinets
Using shredders to destroy secret documents permanently
Using secure services to deliver confidential documents, if necessary

4. How long will the NDA last?

The NDA should explicitly state when the agreement to protect the confidential information begins (the “Effective Date” ) and the duration in which the information can’t be shared with others (the “Disclosure Period,” or period of confidentiality). In addition, the parties involved usually agree on when the agreement will end (the “Termination” provision).

Our NDA survey in 2022 revealed that more than 80% of NDAs created required the signees to maintain confidentiality indefinitely (forever). This is a legitimate practice for some types of confidential information, like trade secrets (such as KFC’s chicken recipe).

However, not all types of confidential information require such extensive protection. Some information may lose its value over the passing of time. For instance, a company’s financial information from 10 years ago may not be regarded as confidential now, as the information became less relevant.

Having information protected for a long time can be mentally draining and costly. In addition, you’ll be exposing yourself to more legal liability than necessary if the period of confidentiality seems excessively long for the type of information that’s being shared. Find out if any provisions in your NDA are perpetually enforceable (meaning they last forever) and consult with an attorney if you have concerns.

5. What additional restrictions are in place?

Read the NDA carefully (as you would with any legal document) to see if any additional provisions may restrain you from certain actions. Commonly seen provisions include:

A non-compete clause. If you have access to a company’s proprietary information, the company may include a non-compete clause that limits you from working for a competing business to maintain its competitive advantage.
A non-solicitation clause. If you receive client information from a company, the company may add a non-solicitation clause in the NDA so that you are prohibited from enticing (“soliciting”) clients for personal gains.
A non-circumvention clause. If you act as an intermediary for a company in a supply chain, the company may include a non-circumvention clause that prevents you from bypassing it and contacting its end customers directly.

The 2022 NDA survey found that more than 60% of NDAs included non-compete and non-solicit provisions.

6. What are the consequences of breaching the NDA?

Remember that an NDA is a legally enforceable contract, meaning that repercussions can follow in the case of a breach.

Check for any unusually harsh or unfair punishments if you fail to keep the confidential information secret. If the punishment is disproportionate to the breach, hold off on signing. Common consequences for breaking an NDA, other than facing legal action, include:

Being forced to pay damages for the disclosing party’s monetary loss associated due the breached NDA
Paying punitive damages because your leak was deemed malicious in court
Being restrained from certain actions by an injunctive relief
Losing business opportunities, as the breach can harm your reputation (particularly if the breach involves sensitive or proprietary information)
Losing the business relationship with the disclosing party

If you see a liquidated damages provision, be wary. This provision ensures that if you breach the NDA, the company or employer will be entitled to a specific amount of damages—without needing to prove you caused actual damage to them.

However, if the liquidated damages are deemed to be an unenforceable penalty rather than a reasonable estimate of the actual damages that would be incurred in the event of a breach, then the provision may not be enforceable. In that case, the party seeking to recover damages would have to prove the actual damages suffered as a result of the breach.

It is important to note that the enforceability of liquidated damages provisions can vary depending on the jurisdiction and the specific language used in the NDA.

7. Is there anything on the NDA that you don’t feel comfortable with?

If you discover (after reading this piece) that there are some red flags in the non-disclosure agreement you’ve been given, ask to modify the document. While you may not win on every point — there may be good reasons for the document’s existing language — it can’t hurt to ask.

To Sign or Not to Sign

Signing a non-disclosure agreement can be a double-edged sword. On the one hand, you demonstrate a willingness to commit and protect the disclosing party’s confidential information, establishing trust in the relationship. On the other hand, you bear a heavy burden and fiduciary duty of maintaining confidentiality. Ultimately, you should only sign an NDA after carefully reading the agreement and weighing the particular circumstance and potential risks.

LegalTemplates has helped create more than 200,000 NDAs with our legal expertise. Start drafting your own with us today.

Should You Sign That NDA? Here’s Why (And Why Not) to Sign