Nondisclosure agreements (NDAs), also known as confidentiality agreements, are legally binding contracts used to ensure that one party does not share confidential or sensitive information regarding the other party with anyone who is not authorized to hear it.
They are most often used in business to protect things like trade secrets, business plans, or other types of intellectual property. Depending on the circumstances surrounding the product or service your company provides, you may not necessarily need to utilize NDAs, but the world of business is cutthroat and there are many companies in extremely competitive industries that could not survive without them.
But how do you know when you should use a nondisclosure agreement, and when it is unnecessary? In this blog we have detailed three common scenarios when you should really consider making liberal use of these useful contracts.
For more information on nondisclosure agreements, check out this blog we wrote on the critical elements that you should include in all of your NDAs [LINK to October 2014 1 of 2], or call Integrated General Counsel and let us help you develop concrete confidentiality contracts that will help ensure your company’s most sensitive information remains guarded.
1) Hiring
One of the most common situations where you need to utilize a nondisclosure agreement is when you are hiring employees for your own company. Your employees have more access to your confidential information than anyone else, and they are most at risk for sharing the information with competitors or others. Even if you completely trust an employee, they may share confidential information with a “trusted friend,” who then shares the information with a competitor. If your company has confidential information that you want to protect, it is better to simply have all of your employees sign nondisclosure agreements as soon as you hire them so that they cannot share such information outside of work, period.
2) Company to Company
There are numerous situations where one company would need to have another sign an NDA. The most common are when you work with vendors or suppliers. Vendors and suppliers oftentimes have access to confidential information about your company simply in the process of conducting whatever service they provide for you. It is important to have your vendors and suppliers sign NDAs to ensure that any confidential or sensitive information about your business that they come across cannot be shared with others. You may even need to have a vendor or supplier sign an NDA simply to discuss the possibility of utilizing their services. For example, if you wanted to contract the services of a delivery company to supply your product, you may have to divulge sensitive logistical information about your operations during negotiations that you would not want to be shared. If you are ever in doubt, have the vendor or supplier sign an NDA.
3) Consultants and Independent Contractors
When you utilize the services of outside consultants or independent contractors who are not hired as actual employees, but will have similar access to your company’s sensitive information as your employees, you will want to have them sign a nondisclosure agreement. Consultants and independent contractors will be bound by the policies you set forth in the individual agreements that contract their services, not your employee handbook, policies, and procedures. Thus, you will need to create separate NDAs for these people from those you have your employees sign.
The general rule about when to use nondisclosure agreements is to have anyone who has access to your company’s sensitive information sign them before they are granted access to said information.
For help creating an effective NDA, please contact Integrated General Counsel today.
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