In this article, we will discuss nondisclosure agreements and answer the following questions:
- What is a nondisclosure agreement (NDA)?
- Can my company force me to sign an NDA if I already work there?
- What business or legal information can be considered confidential?
- What kind of information can’t be covered under an NDA?
- Does my business need an NDA?
- How do I ensure my business’s NDA holds up in court?
What is a Nondisclosure Agreement?
With more and more companies utilizing big data in decision making and to drive innovation, protecting that data has become a priority, leading to an increase in the utilization of NDAs for new and existing employees. An NDA is a legally binding contract between an individual or entity who holds confidential information, presumably the employer, and an individual who will receive that information. The company requires the NDA in order to protect information about its finances, operations, research, technology, or to maintain a competitive edge. But, can the company force an employee to sign an NDA?
Can My Company Force Me To Sign an NDA If I Already Work There?
There is no law against a business requiring a new employee to sign a nondisclosure agreement before beginning work. The company has the right to refuse employment if the new employee fails to sign the NDA. The situation becomes a little more complicated if the employee has been around for a while and the company suddenly requires him or her to sign an NDA. While this is not uncommon if the company threatens termination of the employee over refusal to sign the NDA the employee may have a legal wrongful termination case against the employer. In many cases, the company must include some increase in compensation or other “fresh consideration” in the contract or employment situation in order to legally threaten termination over refusal to sign the NDA. Some companies will try to skirt this by including language in the NDA that specifically states that the terms stated in the agreement are the only considerations for signing the agreement and nothing else has been promised by the company in exchange for the employee signing the contract. As an existing employee, you have the right to confer with an attorney regarding any contract or agreement that your employer asks you to sign.
What Business or Legal Information Can Be Considered Confidential?
What a business considers proprietary information varies depending on its field of operation, but in general proprietary information usually consists of things like test results, research analyses, customer lists, system specifications, passwords, mechanical data, etc, etc. Regardless of what specific type of information is in question, there are some criteria to consider when determining the confidentiality of any given information:
- The information is not common knowledge and generally not ascertainable;
- The information gives an advantage to the business over other businesses in the same field;
- The business that owns the information has made reasonable efforts to protect that information and has clearly designated that information as confidential; and/or
- The information, records, technology, etc were developed by or on behalf of the company at a significant cost to the company.
What Kind of Information Can’t Be Covered Under an NDA?
A confidentiality agreement can’t just be a blanket statement listing all information, communication, etc etc, existing at a company be considered proprietary. An NDA must have clear language that indicates what the company considers proprietary, and by signing the agreement the employee indicates they understand and agree to the items proposed by the company. However, no matter what a company attempts to include in its NDAs there are certain types of information that would not legally be considered proprietary, such as:
- General knowledge,
- Anything available through public record;
- Any information the new or existing employee had gained through different sources prior to signing the NDA, regardless of whether the company considers it proprietary; and
- Information that is subject to a subpoena may no longer be considered proprietary in certain situations.
Does My Business Need a Nondisclosure Agreement?
If you’re not sure whether you should include an NDA in all your new employee paperwork, or if you need to have existing employees sign an NDA when moving into a new role there are some questions you can ask to better determine the necessity of an NDA, including:
- If an employee discussed my internal operations with a competitor could it harm my business or cause me to lose my advantage over my competitors?
- If a vendor or client that my company works with divulges information about our sales process, pricing, etc, will it hurt my business in a way that is irreparable?
- Do I want the legal grounds to discipline, fire, or seek restitution from an employee who is divulging proprietary information to people outside my company?
If you answered yes to any of these questions then you may want to consider seeking the help of a qualified business attorney to draft an NDA.
How Do I Ensure My Business’s NDA Stands Up In Court?
Not all NDAs are created equally. In order to create an ironclad NDA that will hold up in court, here are a handful of suggestions to consider:
- Use an attorney. Business attorneys understand the law and are used to writing language that will stand up in court;
- Don’t try to draft an agreement that is too broad or unreasonable. Be specific about what information you consider propriety and want to protect, and make it realistic;
- Make sure all names on the confidentiality agreement are correct, including the legal name of your business;
- Don’t assume that knowledge a new employee brings in can suddenly be considered proprietary under future employee NDAs. Any information that an employee brings in from a third party will not be covered under an NDA;
- An NDA cannot retroactively cover information already disclosed to an employee;
- Be sure the individual signing the NDA for your business has the legal authority to do so;
- Be sure you understand the jurisdiction limitations of an NDA;
- Allowing employees who have not signed an NDA to access information covered by an NDA for other employees;
- Not having procedures in place to monitor proprietary information and/or not providing proper guidance to employees regarding compelled disclosures.
If you have any questions about nondisclosure agreements give us a call at 630-324-6666.
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