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 an employee to sign before starting work
- Mutual NDA: A company asking a potential business partner to sign before exploring a business deal
- Interview NDA: Employers asking an interview candidate to sign before interviewing
- Inventor NDA: An inventor asking an investor to sign before seeing the invention
Why sign an NDA?
NDAs are common in the business world — you’ve likely been asked to sign one because the individual, company, or entity has sensitive information to protect, 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.
But no matter the situation you’re in, there are some questions you should ask and answer before signing your name on the NDA’s dotted line. Take these four critical steps 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.
1. Understand the NDA’s scope
Study and answer the following questions before signing:
What type of information are you required to keep confidential?
The information you’re supposed to keep confidential won’t be spelled out in specific detail. Instead, the NDA’s language will list categories of information. For instance, you might be asked to keep purchase records, proprietary processes, trade secrets, or any other number of categories confidential.
Without knowing which ones you’re responsible for keeping secret, you’ll put yourself at risk of accidentally leaking the information.
What steps must you take to keep it confidential?
If you sign the NDA, you’ll be responsible for keeping the information confidential. You’re legally liable if confidential information gets leaked, even if it’s inadvertent. Some common practices for protecting confidential information include:
- Controlling access to the information with passwords, firewalls, and encryption
- Keeping confidential documents in lockable storage cabinets
- Using shredders to permanently destroy information
- Using secure services to deliver confidential documents, if necessary
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 can’t be shared with others (the “Disclosure Period”). In addition, the parties usually agree to when the agreement will end (the “Termination” provision).
If the period seems excessively long for the type of information that’s being shared, you’ll be exposing yourself to more legal liability than necessary.
2. Look for broad language in the NDA
Be wary of language in the agreement that doesn’t relate to information you already have personal or public knowledge of. Otherwise, you’ll handcuff yourself and open yourself up to greater liability — although an NDA with language that’s too broad and too vague is unlikely to hold up in court.
In general, the following types of information should be excluded from an NDA:
- Information publicly available, like from a Google search
- Information you may acquire on your own or already possess
- Information you can prove you learned of independently, and not from the protected information provided for under the NDA
- Information received from a 3rd party source
3. Understand the consequences of breaching the NDA
Check if there are any unusually harsh or unfair punishments in the event you breach the NDA. If the punishment is disproportionate to the breach, hold off on signing. Common consequences for breaking an NDA, other than a costly lawsuit, include:
- being forced to pay damages for the Disclosing Party’s monetary loss associated due the breached NDA, or
- paying punitive damages because your leak was deemed malicious in court.
4. Try to negotiate the NDA before signing
If you discover (after reading this piece) that there are some red flags in the NDA you’ve been given, you can 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.