Are You Using Non-Disclosure Agreements as Preventive Measures or Backup Plans?
All companies have secrets to keep. And some try to address them by stopping the bleeding -- using non-disclosure agreements -- only after those secrets have been spilled. Others insert NDAs into every conversation possible.
But while some companies believe these agreements are useful only after a breach has occurred, nothing could be further from the truth. Once confidential information is compromised, it’s too late.
Look at an experience my own company had: A couple of years ago, we let an employee go; she responded by threatening to release our customer data to a competitor if we didn’t hire her back. When we pointed out that violating her contract would result in a hefty fine, she promptly gave us access to the confidential information she had and allowed us to confirm that she’d deleted all company documents.
Thanks to a signature on a piece of paper, my company avoided a disastrous situation. Just such a preventive approach will preserve your company’s information, too.
Forestalling a breach with an effective NDA
An NDA informs recipients that they’re under a legal obligation not to share company secrets. Studies show that people who write things down remember them longer than people who repeat things verbally. Signing the NDA activates a person’s visual perception and eye-hand coordination, to make that warning stick.
But the uses of an NDA aren’t cut and dried. Asking partners and employees to sign one before conducting business together might present you as an authority. But given to the wrong people, an NDA might make you appear distrusting.
To create and distribute an effective NDA, follow these six guidelines:
1. Detail a specific penalty for breaching the agreement.
Most NDAs include legalese stating that employees can’t disclose company information but fail to outline specific penalties. As a result, a judge might award you damages below the value of the leaked information -- if any. By stipulating a fine beyond the secret’s value, you not only avoid being undercompensated, but you also emphasize the gravity of the contract to those who sign it.
2. Keep it short.
Include the necessary information, but keep the contract as brief as possible. Most NDAs are signed during the onboarding process or at a kickoff meeting, and a lengthy document might motivate the other party to seek legal counsel, delaying the process.
3. Spell out what confidential means and how it works.
Clearly define what constitutes “secret” information, providing examples. Clarify the capacity employees and partners are functioning in and how they should store and protect information. For example, you would hold a software engineer to a higher standard if the data on his computer were hacked than you would an assistant whose laptop was stolen at the airport.
To cover my bases, I include a tagline in emails verifying that the contents are confidential without implying that I’m entering into an agreement.
4. Consider including a non-compete clause.
If you’re sharing information with people who might become competitors, include a non-compete clause that extends one to two years after the confidential information is received.
5. Simplify the process for everyone.
Apps such as Shake make it easy to draft a digital NDA. We developed an HTML5 canvas technology that allows others to sign via mobile devices, but there are many digital signature services available, such as DocuSign. Draw up and sign two copies, giving one to the other party.
6. Hand the NDA to the right people.
Employees should be the first people required to sign NDAs; most breaches occur when a disgruntled former employee takes your customer list to a competitor.
But asking or forcing someone into an NDA when no significant information will be discussed shows your priorities are misaligned and can sour a deal. Investors, for example, should never be asked to sign NDAs. Timing, management and execution form the backbone of any successful venture -- not the idea alone.
The Uniform Trade Secrets Act requires employers to exercise reasonable efforts to maintain secrets, so enforcing these contracts is half the challenge. Most importantly, make sure to complete the NDA prior to releasing confidential information. It won’t do any good after the fact.
Don’t wait until a breach occurs to fall back on your NDA. Proactively draft and enforce these contracts. Once your secrets are out, there’s no guarantee you’ll recover them unharmed.