Should You Sign a Nondisclosure Agreement?

Has your employer recently asked you to sign a nondisclosure agreement? At many companies, a nondisclosure agreement – a contract by which you promise to maintain the confidentiality of the employer’s trade secrets – is a standard part of the new hire paperwork employees must sign. Or, you might have received a nondisclosure agreement upon being promoted to a position that gave you access to confidential information. And sometimes, an employer will simply realize at some point (perhaps on retaining an attorney or hiring in-house counsel) that it should get this type of protection in place.

Generally speaking, employees are already legally obligated not to reveal an employer’s trade secrets. So, signing a nondisclosure agreement won’t necessarily bind you to any additional responsibilities. However, not all nondisclosure agreements are the same. Some nondisclosure agreement will require you to keep a broader set of employer information confidential, even if it doesn't qualify as a trade secret. And, sometimes employers combine nondisclosure agreements with other agreements, such as an inventions assignment agreement or a noncompete agreement.

No matter when or why you are presented with a nondisclosure agreement, you should read it carefully and consider all of its terms before signing.

What Is a Nondisclosure Agreement?

A nondisclosure agreement is a contract in which one party agrees not to reveal the other’s confidential information and trade secrets. These agreements are used when, for example, an inventor wants to meet with potential investors, developers, or partners, or when two companies meet to discuss a possible merger. In these contexts, the purpose of the agreement is to allow everyone to speak openly, without fear that someone will steal a great idea or misuse confidential information at a later date.

In the employment context, a nondisclosure agreement is typically used when an employee will have access to the employer’s trade secrets or confidential company information, or when an employee’s job is to develop and work on these types of intellectual property. The employer wants assurances that the employee won’t steal the company’s information or use it to start or join a competing company.

Common Terms in a Nondisclosure Agreement

A nondisclosure agreement can be a simple one-page statement or a lengthy document filled with legalese. No matter the style or length, it should include some basic information, including:

  • What information is protected.  The contract should provide a list or description of the types of information the agreement covers, such as confidential information about the company’s products or services, information about the company’s business (such as pricing, customer lists, and business plans), and information about the company’s employees (such as salaries and other personnel information).
  • What information is not protected.  Check to make sure that the agreement doesn't require you to maintain the confidentiality of information you already knew when you started working at the company (unless providing it was part of your employment agreement, such as signing over an invention). You also should not be required to protect the confidentiality of information that is available to the general public.
  • Your obligations.  Typically, a nondisclosure agreement will provide that you may not reveal or use the company’s trade secrets and confidential information without the company’s consent. And, this obligation generally continues even after the employment relationship ends.
  • Penalties for violating the agreement.  Employers often include a contract clause allowing them to get “injunctive” relief if you breach the contract. This means the employer can go to court and ask it to order you to immediately stop using or revealing the trade secret. An employer may also be entitled to money damages if you breach the contract, as well as attorney fees and other relief.

If You Have Questions

As noted above, many nondisclosure agreements are standard contracts, which may not require you to give up valuable rights you would otherwise have. That doesn’t mean you should sign anything your employer puts in front of you, however. For example, your employer might be so broad and general in describing the information it wants you to protect that you can’t figure out what you are agreeing to. Or, the contract may include a provision entitling the employer to significant money damages if you violate its terms.

And, you should read the agreement carefully to see if it covers other employment matters. For example, an employer may include terms about ownership of inventions created during the employment relationship. Or, the agreement may include a noncompete clause that restricts your ability to work for other companies after your employment ends, or an arbitration clause that requires you to give up your right to sue in court.

If you have any questions or concerns about your employer’s nondisclosure agreement, you should talk to an experienced employment lawyer.

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