Individuals and businesses that pitch ideas and proposals and invent new products must ensure the information they disclose remains confidential. In order to protect their intellectual property or sensitive information, they ask the parties involved to sign a non-disclosure agreement.
However, there are many aspects to factor in before signing an NDA. From drafting one, to reviewing so you fully comprehend it, here are some top tips on using and signing non-disclosure agreements.
What is a Non-Disclosure Agreement and Why Does It Matter?
Simply put, an NDA (Non-Disclosure Agreement) is a tool to protect sensitive information shared between parties during business dealings. Once an NDA is signed, the parties involved are forbidden to release sensitive information concerning the other party.
NDAs are particularly useful for freelancers and small business owners who often share ideas or plans before signing formal contracts. Though NDAs are commonly used in the freelancing industry, as a freelancer or a startup, you may find the legal language used in an NDA confusing. This is why you should take time to carefully review the agreement and understand it before signing it.
As lawyers, we have seen some clauses added to NDAs which really should not be in there. Clauses such as non compete and transfer of ownership of intellectual property rights. That’s why it’s important to check an NDA in detail before signing.
When to Use a Non-Disclosure Agreement
There are many situations when businesses should use a non-disclosure agreement.
Pre-Contract Negotiations
NDAs are not only used when a deal is made. In order to protect the sharing of confidential information, NDAs are essential as soon as businesses start negotiations to work together. Carefully prepare and have your non-disclosure agreement ready during initial discussions when sharing ideas, strategies, or proprietary information. This is crucial before entering into any discussions.
Project Pitches and Proposals
NDAs are also helpful when pitching ideas or collaborating on potential projects with new clients or partners. They protect your ideas, proposals, and proprietary information from being shared with competitors and third parties.
Hiring Freelancers or Collaborators
All businesses that work with freelancers should use an NDA before hiring, especially if they’ll be working with sensitive business information. This is highly important if you don’t intend to use a contract with freelancers and collaborators. However, we would advise against this as a contract protects you much more than just a confidentiality agreement.
What to Watch Out For in a Non-Disclosure Agreement
Although all NDAs have one purpose, which is not to disclose or misuse the information shared, they are all individually drafted and differ based on the specific needs of the business.
Watch out for restrictive clauses. Some NDAs include very restrictive non-compete clauses, which could unfairly limit future work opportunities. This is another reason why you should fully comprehend the NDA before signing it.
Vague language. Many NDAs use vague or overly broad language, and they could end up restricting more than you intended. You should use caution when signing NDAs that don’t use specific language when defining confidential information.
Time-restrictions. NDAs vary with regard to time limits. It really does depend on the type of confidential or sensitive information that is being shared. After the NDA expires, the parties involved can use and disclose information freely. Consider whether the proposed time restriction is reasonable for the type of information being protected.
Mutual vs. One-Way NDAs. The type of NDA you choose depends on the situation and specific needs. A One-Way NDA is used when only one party shares confidential information. In this case, the receiving party is legally bound to keep the information safe. A mutual NDA is signed when both parties share sensitive information and agree not to disclose each other’s confidential information.
Tips for Signing NDAs
Before you sign a non-disclosure agreement, keep the following points in mind.
- If you don’t read your NDA thoroughly, you don’t know what you are signing and risk costly mistakes. It’s worth getting legal advice if anything seems unclear or overly restrictive.
- Don’t sign an agreement that doesn’t work for you. Negotiate on things like narrowing down broad clauses or adjusting the duration of the agreement.
- Before signing an NDA, you should feel confident that you understand every point. Some red flags to watch out for are perpetual obligations, overly complex language, or any clauses that seem unnecessary for the context of the work.
Do you need an NDA Template?
Our NDA template is designed to be simple and easy to understand, making it a great starting point for freelancers and small business owners. Moreover, the template can be tailored to suit specific needs, ensuring it’s neither too broad nor too restrictive.
A well-drafted NDA template can protect your interests without the hassle of drafting from scratch. Knowing it has been drafted by lawyers should give you peace of mind that it will protect you.