Non-disclosure Agreements – What are they and do I need one?
Non-disclosure agreements known as “NDAs” are an important business tool which should be used whenever you plan to enter into a discussion with another person or company about a business proposal or project where there is the likelihood that proprietary information and trade secrets will necessarily be shared to further the exploration of the business relationship such as the development of an invention or app, a sales relationship, or a technology licensing agreement.
An NDA is an agreement that should be in writing and signed by all parties who will receive confidential information. It can be enforced like any other contract but it assumes that all parties to the agreement will voluntarily honor its terms and conditions. A common mistake is a person assumes he/she can enter into an NDA after negotiations have begun. While it is possible to create a retroactive NDA, the best practice is to get one signed by all parties before you share any of your confidential information, not after. Once you share confidential information with the other party, it is now in their hands and if that party decides to violate the confidentiality of the information, you will be placed at risk and the right to sue that party for violating the agreement is chasing horses after they’ve left the barn. Despite NDAs do not guarantee that your confidential information will not be disclosed by the other party, having an NDA is better than not having one.
NDAs are often used when new employees are hired by a company. Most often, the language of the NDA is contained in the employee manual or in a written employment contract as opposed to a separate agreement. In addition to obligating the employee to treat the company’s information confidential, sometimes employers include contractual language that prohibits or restricts the employee from competing with the employer if and when the employee leaves the company. This type of agreement or provision is known as a “non-compete” agreement and typically prohibits the employee from pursuing the same line of work after he or she departs from the company. In California, non-compete agreements are automatically void as a matter of law except for a narrow category of situations that are expressly permitted by statute. See, California Civil Code sections 1872.
It is vital to make sure the NDA broadly but specifically describes the type of information that will be shared during the negotiations and the restrictions on the use of the confidential information must be clearly spelled out. For some good ideas about making your NDA stronger, see this article: http://www.natlawreview.com/article/6-ways-to-strengthen-your-boilerplate-ndas