There are numerous legitimate reasons you may have been asked to sign a non-disclosure agreement (NDA) — and usually, there’s no issue with signing one. The most common situations include:
Employee NDA: Employers asking new employees to sign before starting work
Mutual NDA: A company asking potential business partners to sign before exchanging confidential information with each other
Interview NDA: Employers ask interviewees to sign before interviewing
Inventor NDA: An inventor asking potential investors to sign before presenting the invention
But no matter your situation, there are some questions you should ask and answer before signing an NDA.
NDAs (interchangeable with “confidentiality agreements”) are common in business relationships—over one-third of U.S. employees are bound by them. You’ve likely been asked to sign an NDA because the individual, company, or entity is about to disclose sensitive information, and you’ll be in a position to learn about and leak that information. In all likelihood, you’ll have to sign the NDA to move to the next steps of your situation.
For starters, understand exactly what an NDA is and how NDAs work. Then, answer these seven critical questions to ensure that you’re not putting yourself at more legal liability than necessary and that the deal is fair for both you and the other party.
In the case of a unilateral NDA (or one-way NDA), only the receiving party’s information and signature are required.
Other types of non-disclosure agreements, however, require signatures from both the disclosing party and the receiving party. This is because both parties involved need to acknowledge the legal liabilities they bear in the confidential relationship.
In 2022, our NDA survey with over 5,000 participants revealed that 94% of disclosing parties deemed all information disclosed as “confidential information” in their non-disclosure agreements. Nevertheless, such vague language can create confusion for signees.
While the information you should keep confidential won’t be spelled out in detail, the NDA’s language will list categories of information. For instance, you might be asked to keep customer lists, business plans, trade secrets, or other categories of sensitive information confidential.
Without knowing which information you’re required to remain confidential, you’ll risk accidentally leaking the information. Make sure you clearly understand the scope of confidential information; reconfirm with the disclosing party if you have doubts.
Be wary of language in the non-disclosure agreement that doesn’t relate to the information you already know personally or publicly. Otherwise, you’ll handcuff yourself and open yourself up to greater liability — although an NDA with too broad and too vague language is unlikely to hold up in court.
In general, the following types of information should be excluded from non-disclosure agreements:
When you sign an NDA, a confidential relationship is established, which makes you responsible for keeping the information confidential. This means you’re legally liable if confidential information gets leaked (even if it’s inadvertent). Some common practices for protecting confidential and proprietary information include:
The NDA should explicitly state when the agreement to protect the confidential information begins (the “Effective Date” ) and the duration in which the information can’t be shared with others (the “Disclosure Period,” or period of confidentiality). In addition, the parties involved usually agree on when the agreement will end (the “Termination” provision).
Our NDA survey in 2022 revealed that more than 80% of NDAs created required the signees to maintain confidentiality indefinitely (forever). This is a legitimate practice for some types of confidential information, like trade secrets (such as KFC’s chicken recipe).
However, not all types of confidential information require such extensive protection. Some information may lose its value over the passing of time. For instance, a company’s financial information from 10 years ago may not be regarded as confidential now, as the information has become less relevant.
Having information protected for a long time can be mentally draining and costly. In addition, you’ll be exposing yourself to more legal liability than necessary if the confidentiality period seems excessively long for the type of information being shared. Find out if any provisions in your NDA are perpetually enforceable (meaning they last forever), and consult with an attorney if you have concerns.
vs period of confidentiality" width="1024" height="768" />
Read the NDA carefully (as you would with any legal document) to see if any additional provisions may restrain you from certain actions. Commonly seen provisions include:
The 2022 NDA survey found that more than 60% of NDAs included non-compete and non-solicit provisions.
In some states, such as Washington, certain thresholds or conditions must be met to enforce the non-compete clause. Some other states like California deem non-compete clauses entirely unenforceable. In addition, the FTC has proposed a new rule to ban non-compete clauses completely as they “suppress wages, hamper innovation, and block entrepreneurs from starting new businesses.”
Remember that an NDA is a legally enforceable contract, meaning that repercussions can follow in the case of a breach.
Check for any unusually harsh or unfair punishments if you fail to keep the confidential information secret. If the punishment is disproportionate to the breach, hold off on signing. Common consequences for breaking an NDA, other than facing legal action, include:
If you see a liquidated damages provision, be wary. This provision ensures that if you breach the NDA, the company or employer will be entitled to a specific amount of damages—without needing to prove you caused actual damage to them.
However, if the liquidated damages are deemed to be an unenforceable penalty rather than a reasonable estimate of the actual damages that would be incurred in the event of a breach, then the provision may not be enforceable. In that case, the party seeking to recover damages would have to prove the damages suffered due to the breach.
It is important to note that the enforceability of liquidated damages provisions can vary depending on the jurisdiction and the specific language used in the NDA.
If you discover (after reading this piece) that there are some red flags in the non-disclosure agreement you’ve been given, ask to modify the document. While you may not win on every point — there may be good reasons for the document’s existing language — it can’t hurt to ask.
An NDA serves the purpose of protecting confidential information during the term of a (potential) business relationship. If you refuse to sign an NDA, the other party will likely terminate the relationship you share. For example, an employer has the right to refuse to hire an individual if the individual says no to signing an employee NDA.
Signing a non-disclosure agreement can be a double-edged sword. On the one hand, you demonstrate a willingness to commit and protect the disclosing party’s confidential information, establishing trust in the relationship. On the other hand, you bear a heavy burden and fiduciary duty of maintaining confidentiality. Ultimately, you should only sign an NDA after carefully reading the agreement and weighing the particular circumstances and potential risks.
Susan Chai is Legal Counsel and Legal Editor at LegalTemplates and has been with the company from the ground floor. She has 15 years of experience in the corporate and regulatory compliance space.
Use our Non-Disclosure Agreement to protect your confidential information.
