NDA’s are quite notorious with employees as they tend to see this document as just another part of corporate bureaucracy. However, many businesses would benefit from a non-disclosure agreement, even small eCommerce businesses or startups.
This document may be the thing that prevents a larger company from stealing your business idea or a toxic employee from selling your trade secrets. If you want to learn more about non-disclosure agreements, how they work, and whether your company needs one, join us for this short explanation.
Do I need an NDA?
While signing an NDA with every employee or contractor sounds like a good decision for those who like to be on the safe side of things, it’s not always the best scenario. Specialists on business documentation from Formspal.com provide commentary as to who that’s the case.
First off, not every type of job requires a high level of secrecy. A regular employee who is not in a high managerial position or doesn’t handle secure data directly will probably never be exposed to sensitive information. You can consider creating an NDA in the following cases:
- You’re presenting a business idea or a business plan
- You are using unique methods or technologies
- You are sharing internal documents like lists of customers
- The other party has access to customer data: emails, names, etc.
- You provide the person or organization with full access to that information or enough partial access that it would be a problem if disclosed
If the information the employees have access to doesn’t fit these criteria, you may work with them without signing an NDA. Also, consider the fact that some of the people on the top rungs of your profession may feel like companies that require all to sign an NDA may endanger their future in the industry. This is largely due to the fact that some have a non-compete clause that makes the signee liable for damages if they open a similar business — even without stealing any original ideas from the former employer.
Another big factor that you should take into consideration is that an NDA doesn’t mean you can prevent the signee from sharing confidential information. It means you can sue them in case of a breach and are quite likely to win the case. So you should consider signing an NDA and working with confidential information if you know you have the resources to legally enforce the agreement.
Now, let’s take a look at what should be included in an NDA.
What to include in an NDA
Parties
The first thing you should include in a non-disclosure agreement is the parties involved. Make sure to include all relevant legal information about both, and specify whether this particular agreement is mutual or non-mutual.
Mutual NDAs require both parties to withhold information that is being shared between them and typically is used when two companies make a deal. Non-mutual non-disclosure agreements only require one party not to disclose any sensitive information and are usually signed between an employer and employee.
Define the confidential information
When you’re working with employees or organizations, you’re going to share a lot of information with them, not all of it sensitive. You’ll need to define what counts as confidential for the purposes of an NDA, otherwise, it may be considered a red flag by the signee.
Be concrete with the definitions and make sure to outline what types of information or what formats are to be considered confidential. It’s best not to rely on the agreement entirely and make clear to the employee what exact information is under NDA when you’re providing them with access to it.
Intellectual property rights
Another clause that is often seen in NDAs has to do with intellectual property. Often, new technologies are made in teams, and the company wants to keep the rights to that intellectual property the team creates. Unless you’re a small startup that only has co-founders on board or you are okay with sharing equity, your NDA agreement should reflect your position. Namely, that employees and companies that take part in creating a particular product hold no rights to it and will not benefit from it apart from contractually obligated payments.
Scope of confidentiality
In many cases, the information that is being shared under the NDA is not important forever. This is why you can limit the timeline of confidentiality and provide a specific timeframe in the document.
It is even more important for the non-competition clause. If your non-competition clause has an indefinite term, you may have trouble finding contractors.
Employee solicitation
In case you’re working with another company and some of your departments may have to collaborate rather closely with it, it’s best to include the employee solicitation clause into the agreement. This clause essentially forbids the signee to employ your current employees for a set amount of time.
Actions in case of a breach
In case of the worst — if the company or the employee you’ve entrusted with confidential information discloses it — you’re going to have to settle in court. The best move is to define what fines should be made for violation of the agreement in advance so that you have a stronger case in court. Set forward concrete sums of money that need to be paid for each type of violation, that will also help mitigate the risk of a breach because the other party will know exactly how much it will cost them.
Wrapping Up
A non-disclosure agreement is an important part of modern business relationships. But signing one may prove difficult. You have to walk the fine line between showing a lack of trust in the terms of the agreement and making it so vague that you don’t stand a chance in court.
Be smart about it, know the ins and outs, and you’re going to secure your sensitive information, no matter who you’re signing it with.
Interesting Related Article: “5 Tips For Ensuring a Smooth M&A“
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