This post originally appeared in the Bite-Sized Legal Newsletter.
Sooner or later, either you’ll be asked to sign a non-disclosure agreement (NDA) or you’ll ask someone else to sign one.
That’s why you should learn more about NDAs.
A Non-Disclosure Agreement (NDA) is an agreement between a company and an employee/contractor that prohibits the employer/contractor from disclosing confidential information about the work to other people or in public.
Basically, with the NDA you agree that you won’t tell anyone the things the NDA prohibits you to tell.
What could be confidential information:
Non-compete clauses prohibit competing on the market with the business you’ve been working for. NDAs prohibit disclosing information about it.
Sometimes there may be non-compete clauses in an NDA, and that’s fine.
If you have a business: Every time you don’t want some aspects of your project to be disclosed in public by your employees or contractors. You’ll want to have it signed as early as possible.
If you are an employee/contractor: It is fair to sign an NDA every time the business you’re working for asks that from you. Just make sure that the NDA is not too broad. More on that later.
The parties of the NDA. There are two parties - Disclosing Party and the Receiving Party.
The Disclosing Party is the one that discloses the information that should be kept secret (the business)
The Receiving Party is the one that receives the information and should keep it secret (the employee/contractor).
The dates. The NDA has a beginning and end date.
The NDA starts applying on the beginning date. From that date, the Receiving Party must not disclose the information.
The end date is the date from which the NDA does not apply and the information can be disclosed freely.
If there is no end date, the NDA applies indefinitely and the information must not be disclosed at any time. This can be changed only by an annexe to the NDA signed by both parties.
The information. The information to be kept secret is an essential part of the NDA. For better protection, describe it precisely.
The information could be presented as a list (this is recommended) or as a narrative.
It doesn’t matter how it is described, as long as both parties are clear with expectations.
Exclusions of the NDA. It describes in what situations the receiving party may use confidential information.
Return of information. When the contract ends, the receiving party should return the information to the disclosing party. It may mean the return of documents, USB drives, etc.
Governing law. If the parties have a dispute, it will be resolved according to the governing law chosen by them.
The following provisions should not be part of an NDA. They are a red flag for the receiving party and unfair practice by the disclosing party.
Unlimited terms. If the NDA applies forever it is a major red flag. It should typically apply for 2-5 years upon signing. In some cases, such as trade secrets (Coca Cola recipe, for example) it is reasonable to apply forever.
Too broad/general scope. The disclosing party may prohibit the disclosure of any information they find necessary, but if they want to prohibit the receiving party from disclosing anything, it may be a sign that legal issues are around the corner.
Intellectual Property Provisions. An NDA is not a place for IP provisions. Its job is to prevent disclosure of certain information, not to make IP arrangements.
Limitations of Liability and Indemnity. Its place is in a commercial contract, not an NDA.
Specific consequences. For example, “if you breach the NDA, you’ll pay $100k”. This is unenforceable unless the actual damages are easy to estimate at the moment of signing the NDA. In the case of a breach of an NDA, the court decides on the compensation amount and penalties - and no one else.
There are three ways to create an NDA:
Write it yourself. You can write it from scratch or use a template.
Use an NDA generator. Here are some free generators you could use to generate your NDA:
Rocket Lawyer NDA
Law Depot NDA
Have a lawyer draft it for you. Aside from the NDA, you’ll get advice on it. It is more expensive and not always necessary, but it is the best option, particularly for more complex projects that require more complex NDAs.
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