What to Know When Signing a Non-Disclosure Agreement

What to Know When Signing a Non-Disclosure Agreement

By: Daniel Steingold | August 09, 2016

The non-disclosure agreement. Otherwise known as the NDA, for many it might as well be lumped into the all-too-common category of “that pesky piece of paper with legalese that I’ll never read.”

And that’s fine if you don’t read it. No employer or party in their right mind would expect you to fully read and absorb such a legal document without having gone to law school.

Still, a distinction must be made: not reading and not understanding are two different concepts. When you sign an NDA— or any legal document— it is assumed that you are fully aware of the terms to which you are agreeing, regardless of whether you fully read the document.

Thankfully, most NDAs are largely cut from the same cloth, which makes it a lot easier to follow them in general terms. Although most feel embarrassed to do so, it never hurts to ask about specific portions of the document, either.

This post will cover general guidelines in regards to what to know and look out for when signing an NDA.

What You Are Actually Signing

First of all, many confuse an NDA for an NCC, which is a non-compete clause. An NCC essentially provides protection against you starting or working for any business competing against the employer— either for any given period of time or in any given geographical region.

Typically, these policies will be defined as broadly as possible, although they usually won’t extend past a year in duration or past the geographical area of the company’s client base.

An NDA, on the other hand, prevents one from legally sharing intellectual property, client details, or anything related to the workplace.

NDAs are intended to help ensure that a company will not lose their clients, trade secrets, logos, trademarks or any other property that helps them maintain a competitive edge to a former, possibly disgruntled employee.

They’re Generally Enforceable

Although there are exceptions to the rule, an NDA is generally enforceable anywhere within the United States.

(Certain states, such as California and Montana, have deemed NCCs as being legally unenforceable, but that’s a different matter altogether.)

Usually, the NDA will be under force of law in the state in which you are working, as opposed to the state where your company is headquartered.

Circumstances can also play a role in determining whether an NDA was legally breached. If an employer is determined to not have clearly or reasonably designated any given information as being confidential, this can make it so they’re less likely to win in court.

Once signed, an NDA is legally binding, which means that you can be sued if you break the confidentiality. Lawsuits are generally costly, so companies will often look to avoid them, but this doesn’t mean that a company will avoid legal action altogether— an arbitration clause, where the dispute is settled outside of court, is often a component within an NDA.

It is important to note that you don’t have to sign an NDA to be held liable for furnishing certain proprietary information to third-parties.

For example, providing a competing company secrets about your current company in order to obtain a lucrative job offer from the competitor is grounds for legal action.

The illegal acquisition or disclosure of trade secrets is called “misappropriation.” Although misappropriation cases are usually handled on a state level, they are largely based off of the federal Uniform Trade Secrets Act (UTSA), which was passed in 1979.

It Doesn’t Hurt to Try to Negotiate

While NDAs are generally difficult to negotiate on, it doesn’t hurt to give the process a shot, particularly if you don’t feel as if all of the provisions apply to the position you’ve accepted.

Although negotiation is probably more common with an NCC— you could, for example, negotiate shortening the geographical reach or the time during which you can’t be in competition— it is by no means unheard of to have an employer accommodate to concerns in a formal offer of employment.

If you are ever seeking advice as for how to negotiate terms on an NDA, seeking legal help is advisable— it is certainly much cheaper than going to court.

Costs of Breaking an NDA

Speaking of legal fees, if a case goes to court, it will likely cost upwards of $100,000 for each party.

If you’ve started a new competing company, there is a good chance that it will be in jeopardy, and you’ll likely be in constant litigation for a month.

Due to the high costs of breaking an NDA, many firms will explicitly ask new hires if they are limited by such a constraint. It has increasingly become common practice for the new firm to take on the costs set by the old firm if a new hire is found breaking an NDA that they already aware of.

If there’s one thing to take away from this article, let it be this: do not break an NDA.

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