Should Your Employees or Business Partners Sign a Non-Disclosure Agreement?

Every business is different, but many small and mid-sized businesses have a good amount of proprietary information that is crucial to their competitive edges in the free marketplace. In fact, proprietary information is the most valuable asset for many startup businesses. This information can include trade secrets, intellectual property, client details, unique processes, and other important information. Having an employee or business partner sign a non-disclosure agreement (NDA) can be effective at protecting this information. 

NDAs Must Be Limited in Scope

At their most basic level, non-disclosure agreements are restraints on free trade. While many people associate NDAs with employees who received a confidential settlement from their employer after a workplace dispute. However, NDAs are good tools for small business owners to protect essential information about the inner workings of the company. For NDAs to be legally enforceable, the agreements must be specific and not overly broad. Generally, NDAs must: 

  • Specify the period of time the information must be kept confidential. The time period must be “reasonable and necessary,” which is up to interpretation by the courts if the NDA is challenged. A few years (2–5 years) is usually appropriate. 
  • Lay out the geographic area in which the NDA applies. The appropriate area depends on the nature of your business, where you conduct business, and where your main competitors are located. 
  • Explicitly describe the proprietary information you want to keep confidential. Be as specific as possible in this section. Whatever you designate as confidential should serve a “legitimate business interest” for your company. Again, what qualifies as a legitimate business interest depends on the particulars of your company. 
  • Outline each party’s obligations in keeping the proprietary information confidential. In this section or another, it’s wise to explain the remedies for a breach of the NDA. Remedies could come in the form of monetary compensation or equitable relief (the court orders the other party to stop or start certain behavior). 

Non-Disclosure Agreements Are Often Negotiated

In many situations, the terms of an NDA are negotiated between the involved parties. Independent contractors and freelancers are often subject to multiple NDAs at one time; as a result, these professionals are keen to push back on any terms they find onerous. At the same time, small business owners have the right to attempt to protect what they feel is crucial information that, if released to the general public, would result in harm to their companies. This back-and-forth is just one reason why you need an experienced attorney to help you draft your company’s essential contracts. 

The Law Offices of Ray Garcia is passionate about helping entrepreneurs set up strong legal frameworks for their companies so they can fairly participate in free commerce. Our goal is to make your life simpler as a business owner. To set up a consultation with our legal team, please call our office at (305) 227-4030 today.