Should I sign this NDA or Confidentiality Agreement?
You just received a non-disclosure agreement (aka, NDA or confidentiality agreement) from someone to sign. It is likely that nothing much has happened between you and that person or business yet. You haven’t started working together or even talked that much with each other!
And so when you receive this document, it’s perfectly reasonable to ask yourself:
“What is an NDA and should I sign it?”
We breakdown below what it is and what you should consider before signing on the dotted line:
1. What exactly is an NDA?
Nondisclosure Agreements (aka, NDAs or confidentiality agreements) are very common in the business world. They are legal contracts used to protect someone’s private information that is not publicly available. For a business, it can be the business’ trade secrets, business strategies and operations, ideas, customer information, etc. If you are on the receiving end of this information, your main obligation is to keep this information a secret.
2. When are NDAs usually signed?
NDAs are generally signed at the very start of a relationship before any confidential information is shared. Otherwise, the information that is shared before signing an NDA is not protected.
3. What are some common situations where an NDA may be used?
A classic situation where an NDA may be used is when two businesses are contemplating a deal together. In order for each side to assess whether this is a good opportunity for them, they will want some information from the other side. For example:
Are they in the right financial position to work with us?
Do they own the assets that they will be sharing?
Do they really have the type and number of customers that they claim?
Or it can be a business who is about to hire a consultant. Before the consultant agrees to take on the job, she may need to know some information before she can give a quote on her fees and deadlines:
Who are the business’ current vendors and suppliers?
What are the systems and processes currently being used?
What business strategies are the business considering?
4. What should I consider before signing any NDA?
It’s important to understand all the terms of the contract and make sure you feel comfortable taking on all the obligations in it.
What counts as “confidential information”?
The person sharing the information will want everything and the kitchen sink to count as “confidential information”. But that means potentially keeping track of a LOT of information, which translates more risks for you. Is the fact that the company’s cafeteria serves tuna fish sandwiches “confidential information”? In the best case scenario, you want the other side to make clear each time they share information whether or not it is “confidential”.
Also, there are some common sense things that should NOT be considered “confidential information”. For example, if the information can easily be found by Googling it on the world wide web, you should not be liable for talking about it with others.
What are the situations where I can actually share confidential information?
If you have a team that is working with you on this potential deal or project with the other side, you will likely have to share confidential information with them. So you want to make sure you can share the information with your team for whatever purpose you are receiving the information.
Also, you may want to make sure you can share the information if it’s required by law or regulation or if you receive a court order to share it.
Other than keeping things secret, are there any other obligations that I have to keep?
Many NDAs require you to safeguard or protect the information so that nobody else can get access to it. This can mean making sure that the guy next to you at the coffeeshop doesn’t see any confidential information from your screen, to making sure your computer systems are secured.
How long do you need to keep things secret for?
The longer the term, the riskier it is for you. Consider this: Will you remember exactly what is confidential 15 years from now? If you are in a business that requires you to sign NDAs constantly with different companies and people, can you keep track of them all? Ideally, you would want your NDA to be for a definite period. It is common for them to run for 1 to 3 years.
5. Is it OK to negotiate an NDA?
Absolutely. If you are not comfortable with anything in the NDA, you should discuss and negotiate before you sign.
6. I get this feeling that NDAs are not treated as seriously as other contracts. Should I treat them seriously?
Yes. NDAs are so common that many forget how powerful they can be. There are constant lawsuits around NDAs – whether it’s suing someone for sharing information or trying to prevent someone from doing so.
Disclaimer: This article is for informational and educational purposes only, it is not legal advice. It does not create an attorney-client relationship between you and Lawgood, its founders, or the author. If you need legal advice, you should hire a lawyer.
