What is a non-disclosure agreement?
A non-disclosure agreement is a legal contract stating that any information an employee learns about the business remains confidential. Some employers ask all their employees to sign an agreement when they hire them. Others may present the contract only to employees in executive or leadership roles or who have access to highly confidential information like trade secrets or important company data.
Businesses typically use their non-disclosure agreements to protect their intellectual property. Having employees sign a non-disclosure agreement reduces the likelihood of any information being leaked or stolen by competitors or other unauthorized third-parties. Most non-disclosure agreements state the exact information an employee isn’t allowed to repeat to others. If the employee violates the contract, they may face legal repercussions.
Information NDAs commonly protect include:
- New and upcoming product designs
- Recent and current company inventions
- Client and customer information
- Trade secrets
- Marketing and sales plans
- Company passwords and important data
Related: Proprietary Information: What Hiring Managers Need to Know
Reasons businesses want employees to sign NDAs
There are many instances where businesses release important information and need to ensure their employees keep it confidential. Employees may be asked to sign an NDA if they’re:
- Working on inventing, designing, implementing or marketing of a new product
- Accessing the company’s financial information
- Using confidential company information to complete certain tasks in their role
- Freelancing or working as a contract employee and may only be working with the company temporarily
Pros and cons of NDAs
Asking employees to sign NDAs helps you feel like your business is protected. Some employees may feel hesitant to sign this agreement. Here are some pros and cons of requiring employees to sign your NDA:
Some advantages of non-disclosure agreements include:
- Keeps competitors from accessing your business’ information: NDAs help prevent your employees from leaving the company and sharing your confidential information with a competitor in exchange for a higher-paying role.
- Lowers your chances of losing money due to data leaks: By signing an NDA, your employees are unable to release passwords or company and client data. This helps prevent your business from losing clients and revenue due to data leaks.
Some disadvantages of NDAs are:
- Misunderstandings from employees: Employees may not fully understand the terms to the agreement, causing them to accidentally break the terms without realizing it. This can result in the need for legal processes and paying extensive legal fees.
- Time-consuming and expensive contract process: Depending on how much information you need to protect, your NDA may be several pages long. It may be time-consuming to write and costly if you hire a legal professional to write it for you. Employees may decide not to read the entire document, which may lead to accidental contract violations.