How do you know if you should Sign an NDA contract or not?

It is normal these days to sign a nondisclosure or confidentiality agreement. Being asked to sign a nondisclosure agreement (NDA) is not a sign of lack of trust; it just constitutes a legal part of doing business. It is usually common in most business settings to sign agreements between each employee, investor, co-founder from one side and the company from the other side.

Nondisclosure agreements (NDAs) or confidentiality agreements provide the legal protection of trade secrets and information that should be kept secret and not divulged outside the workplace.

To get to the level of signing a nondisclosure agreement, one should identify first, if the information protected includes trade secrets such as client-customer information, new product designs, sales, and marketing plans, or new inventions.

The type of information covered by an NDA is almost limitless. In fact, any knowledge exchanged between those involved can be labeled as confidential. However, if any of the trade secrets elements existed, therefore, the necessity of signing a nondisclosure agreement (NDA) arises.

According to the USPTO, trade secrets are:

  • Information that has either actual or potential independent economic value by not being generally known,
  • Has to value to others who cannot legitimately obtain the information; and
  • Is subject to reasonable efforts to maintain its secrecy.

All three elements are required; if any element ceases to exist, then the trade secret will also cease to exist. Otherwise, there is no limit on the amount of time a trade secret is protected. Trade secrets cannot be protected through a governmental body.


What happens if your business is based on a secret recipe? How can you protect it?

To protect your business, you would mostly want all stakeholders and involved parties in the business to sign nondisclosure agreements (NDAs) or confidentiality agreements. The Coca-Cola formula is an example of a trade secret that remains closely guarded up until this day.

In both cases, if you are asked to sign a nondisclosure agreement (NDA) or asking someone else to sign, then this means that the information has to be kept secret, and any information shared will lead to legal repercussions. If any information is leaked, the harmed party can claim breach of contract.


What should I do if asked to sign?

Nondisclosure agreements represent a form of trust between the people involved. If you are asked to sign an NDA when starting a new business relationship, it is probable that the individual or company you are working with has no way to know if you would release their confidential information or would keep them private. In order for them to set this culture of confidentiality, companies usually, request from you to sign this legally binding document.

Maybe your company has faced issues previously with employees releasing confidential information, or maybe it is just the legal department asking you to abide by the companies requirements as a term of employment. One thing you should know for sure: It is likely not personal. Nondisclosure agreements (NDAs) are just part of doing business.

If you are asked to sign an NDA, it is critical that you read and clearly understand the terms of the agreement. Regardless of its purpose or the information it protects, all NDAs generally contain the following important headlines:

  • Definitions and detailed description of the confidential information
  • Obligations and compliance terms for all involved parties
  • Time periods

It is very important to understand the importance of such a document and take your time in reading it and fully understanding its elements before signing it. It would be also great if you ask your questions and communicate your concerns about it before it is too late. This will help you avoid misunderstanding and will lower the probability of you falling into a contract breach.

Regardless of the questions you might ask or the circumstances you are in on the day of signing, it is important to know that reading through any document before signing is crucial. If you have any questions about what the content of an NDA is, it is Okay to consult with a lawyer for advice. It is important for you to be aware of how legal agreements work before signing or creating a document. Being well informed will help you make the best legal decisions from now on!