Being asked to sign a nondisclosure or confidentiality agreement isn’t a sign of mistrust; it’s just part of doing business.
As you navigate both business and legal situations, you’ll likely find that nondisclosure agreements (NDAs) are relatively common in many business settings. In addition, confidentiality agreements and NDAs offer the most surefire ways to protect trade secrets and other confidential information that a business wants to keep private.
There is a wide range of personal and professional settings where you may be required to sign an NDA, to protect:
- Client and customer information.
- New product designs and schematics.
- Trade secrets.
- Sales and marketing plans.
- New inventions.
A nondisclosure agreement means your secrets will stay safe, whether you are signing an NDA or asking someone else to sign one. If information leaks, there could be severe legal repercussions.
In most cases, there’s nothing wrong with signing an NDA, as long as you understand the terms and rules.
What exactly is an NDA?
In its most basic form, a nondisclosure agreement is a legally enforceable contract that creates a confidential relationship between a person who holds a trade secret (or other information) and the person to which they will pass the secret or information.
NDAs protect sensitive information. By signing an NDA, participants promise not to divulge or release information shared with them to any other people. If information is shared, the injured person can claim a breach of contract. The type of information covered by an NDA is virtually unlimited. Any knowledge exchanged between those involved can be considered confidential.
What should I do if asked to sign?
Nondisclosure agreements revolve around trust. Suppose you’re asked to sign an NDA upon entering a new business relationship. In that case, it’s likely because the individual or company feels that’s a surefire way to keep their confidential information private and, at the same time, establish a culture of confidentiality. Perhaps the company you’re joining has been burned by an employee’s loose lips in the past, or maybe it’s something the legal department asks all new employees to comply with as a term of employment. One thing is for sure; it’s not likely personal. NDAs are just part of doing business.
If you are requested to sign an NDA, it’s essential to understand the terms of the agreement. Regardless of its function or the information it protects, all NDAs generally contain a few specific pieces:
- Definitions of confidential information
- Obligations from all involved people or parties
- Time frames
It’s a good idea to fully understand each element before putting your ‘X’ on the line. Asking yourself questions such as these can help:
- What information is considered confidential? Confidential information defines the categories or types of information covered by the agreement. This specific element establishes the rules-or subject/consideration of the contract without actually releasing the precise information. For example, an NDA might include a statement such as this for an exclusive designer’s clothing boutique: ‘Confidential information includes customer lists and purchase history, credit and financial information, innovative processes, inventory and sales figures
- How long will I be prohibited from mentioning this information? Time frames are also commonly addressed in NDAs, and usually require that the party receiving the information protects that information for several years. This specific information is usually up for negotiation.
- What might constitute a breach? NDAs explicitly spell out that the person receiving the information is to keep it secret and limit its use, which means you can’t breach the agreement, encourage others to breach it, or allow others to access the confidential information through improper or unconventional methods. For example, if a designer from a computer company leaves a gadget prototype at a bar where a technology reporter discovers it, the designer would likely be in breach of the NDA signed when he took the job.
If you’re working as a freelancer or contractor, you might want to consider some additional questions:
- Can I list this person or company as a client on my website or professional profiles?
- Am I allowed to include this company and project on my resume?
Regardless of the circumstance, it is essential to read through any document before signing. If you have questions about signing an NDA, or what has been included in an NDA, consult a lawyer for advice. It’s vital to understand how legal agreements work before signing or creating one.