What should you do before you sign an NDA?

What Should You Know Before You Sign an NDA?

Have you been instructed to sign a non-disclosure agreement (NDA) at work without a reasonable explanation from your employer? There is no harm in signing a NDA. However, it is essential that you understand the legal consequences of signing the document. 

At Gardner Employment Law, as one of our specialties we analyze agreements between clients and their employers.  If you have questions about your NDA call us, and we will be happy to assist. 

What To Consider Before Signing a NDA

A non-disclosure agreement is a confidentiality agreement between two parties; the owner of protected information and the recipient of that information, i.e., a business and an employee. It is an enforceable contract.  You are legally bound by each provision. The ostensible purpose of an NDA is to maintain the confidentiality of the employer’s proprietary information. In Non-Disclosure Agreements we discuss NDA’s in depth.

Often the company’s legal department will use an NDA contract to insert other types of promises to be extracted from employees, even though the title may be “Non-Disclosure Agreement.” Similarly, inside the document management lawyers may use headings for the sections but include promises requested from the employee that are different from the actual heading.  For example, you might see a heading entitled “Definition of Confidential Information,” which leads you quickly to assume that you know what is contained in the paragraph, maybe a page long. But after carefully reading the entire section, you find obligations that are not in your best interests.

I had a client once who owned the patent rights to a highly efficient digital mobile device that could revolutionize the data collection in the field for large corporations. One corporation with whom the client sought to joint venture required the client to sign a “standard NDA” before meeting with the corporation’s technical staff. It looked like a simple 2-page ordinary NDA.

But Paragraph 4 contained a provision that if the device were used in any of the corporation’s projects, the ownership rights of the entire design became the property of the corporation! It was a rather innocuous looking section, but when I read it I told the client to strike that section before signing the NDA. The client agreed and thanked me for catching this rather deceitful provision. When he returned the signed NDA with Paragraph 4 marked through, the corporation refused to go forward. The client lost this one deal, but he saved the one thing that made his small business profitable.

NDA’s are 100% negotiable until they’re signed, at which point the agreed-upon terms and conditions are legally enforceable.  If aspects of the agreement seem unfair or potentially uncertain to you, don’t be afraid to propose changes.  Likewise, always ask for clarification if there is ambiguous or overly-technical phrasing. This is when you may need legal advice.

Mutual vs. Non-Mutual NDAs

Non-Disclosure agreements come in two basic formats: a mutual agreement or a one-sided agreement. As Forbes explains, the one-sided agreement is when the party with confidential information is contemplating that only its side will be sharing confidential information with the other side. This is the typical NDA in an employment context. The employer is permitting the employee to use valuable confidential information and trade secrets that give the company an edge against its competitors. The employer seeks to prevent disclosure of its proprietary information.

The mutual NDA form is for situations where each side may potentially share confidential information. This format more often is used in transactions between two commercial entities, such as the joint venture that I described above regarding my prior client.

What Happens If You Violate the NDA?

Violating an NDA creates a breach of contract claim since an NDA is a contract. A violation also could create other claims, such as trade secret misappropriation, copyright infringement, or unfair competition depending on the confidential information involved.

Misappropriation is the acquisition or disclosure of trade secrets by improper means including theft, bribery, and fraud. Examples include:

  • A company promises a competitor’s employee a better job in return for providing trade secrets.
  • An employee furnishes trade secrets to a newspaper reporter.
  • Key employees take confidential customer information and open a competing business.
  • A hacker breaks into a company’s computer network, downloads trade secret information and posts it on a website.

Most of the laws that protect trade secrets are based upon the Uniform Trade Secrets Act (UTSA). Texas enacted the Texas Uniform Trade Secrets Act in 2013. The law closely follows the UTSA.

NDA’s Used in Avoiding Sexual Harassment Claims

In recent years, some high profile employers have required employees to sign NDA’s, who later sued the employer for sexual harassment.  The employer then claimed that the personal details could not be litigated because they were barred by the NDA. Harvey Weinstein succeeded for many years using this approach.  

As Frontline notes, although NDA’s are enforceable contracts, “they’re now coming under scrutiny from lawmakers, attorneys and legal experts. . . . In fact, many experts say such agreements could be declared void if a judge determines that enforcing one would essentially violate public policy, for example, a contract related to a crime.”

This interesting use of NDA’s has not yet been addressed by our Texas Legislature.

Contact an Attorney

You can see how a “standard NDA” might not be so “standard.” You must carefully read any document that your employer asks you to sign. Under Texas law, you are presumed to have read and understood any document that you sign.

If you don’t understand all of the terms of an NDA or any document that you’re required to sign at work, feel free to give us a call. 

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