Being asked to sign a nondisclosure or confidentiality agreement isn’t a sign of mistrust; it’s just part of doing business. In fact, as you navigate both business and legal situations, you’ll likely find that nondisclosure agreements (NDAs) are fairly common in many business settings. Confidentiality agreements and NDAs offer the most surefire ways to protect trade secrets and other confidential information meant to be kept under wraps.
You might be asked to sign an NDA in a wide range of settings, both professionally and personally. For example, information commonly protected by NDAs might include client and customer information, new product designs and schematics, trade secrets, sales and marketing plans, and new inventions. Regardless of whether you’re being asked to sign an NDA or asking someone else to, a nondisclosure agreement means your secrets will stay underground, and if information leaks, there can be serious legal repercussions.
In most cases, there’s nothing wrong with signing an NDA, as long as you understand the terms and rules.
What’s an NDA, anyway?
In its most basic form, a nondisclosure agreement is a legally enforceable contract that creates a confidential relationship between a person who holds some kind of trade secret (or other information) and a person to whom the secret will be disclosed.
NDAs protect sensitive information. By signing an NDA, participants promise to not divulge or release information shared with them by the other people involved. If the information is leaked, the injured person can claim breach of contract. The type of information covered by an NDA is virtually unlimited. In fact, any knowledge exchanged between those involved can be considered confidential. This may mean test results, customer lists, software, passwords, system specifications and other data. While this list isn’t at all exclusive, it might help you think of other instances of protected information.
NDAs revolve around trust. If you’re asked to sign an NDA upon entering a new business relationship, it’s likely because the individual or company you’re working with has no way to determine if you’d keep their confidential information private. Asking you to sign a legally binding document is likely the only surefire way to establish a culture of confidentiality. Perhaps your company has been burned before an employee’s loose lips, or maybe it’s just something the legal department asks you to comply with as a term of employment. One thing’s for sure: It’s likely not personal. NDAs are just part of doing business.
If you’re asked to sign an NDA, it’s important that you 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 periods
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? Definitions of confidential information spell out the categories or types of information covered by the agreement. This specific element serves to establish the rules-or subject/consideration-of the contract without actually releasing the precise information. For example, an NDA might for an exclusive designer’s clothing boutique include a statement such as this: ‘Confidential information includes customer lists and purchase history, credit and financial information, innovative processes, inventory and sales figures.’
How long am I am prohibited from mentioning this information? Time periods are also commonly addressed in NDAs, and usually require that the party receiving the information stays mum for a number of 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. This 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 it’s discovered by a technology reporter, 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 considered some other questions, too:
- 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’s important to read through any document before signing. If you have any questions about what’s contained in an NDA, it’s OK to consult with a lawyer for advice. It’s important to be aware how legal agreements work before signing or creating a document, as being well-informed can help you make the best legal decisions now and down the road.