Protecting your intellectual property, company secrets, and business ideas is important to you. So you come up with an agreement for people to sign before you discuss these matters with them.
Using legal agreements is key to making this work. But there’s a time and a place to demand a non-disclosure agreement.
For instance, if you’re getting ready to hire a freelancer or contractor, who won’t be with your company for more than several months, then it’s a good idea to have them sign an NDA to ensure they don’t run off with information your competitors can benefit from.
On the other hand, you may turn people off if you ask for their advice regarding your idea but require them to sign an NDA first.
Knowing the pros and cons of NDAs is important in making the decision to use an NDA. For example, when you hire new employees.
Many companies make it mandatory for new hires to sign non-disclosure agreements in order to get hired.
If you’re considering implementing an employee non-disclosure agreement, then you’ll find this guide helpful. We’ll take a look at the advantages and disadvantages of employee NDAs and how to use them.
So let’s begin!
The Pros of Using Employee Non-Disclosure Agreements
As an employer, you want to hire the best talent for your company. But at the same time, you don’t want to risk your confidential data being shared in the event they leave to work for a competitor.
This is one of the top benefits of having new hires sign an employee non-disclosure agreement. Depending on the language of your NDA, you can protect your company’s trade secrets and other confidential information you share with employees.
When you require employees to sign an NDA, it also helps to reduce the chances of losing key clients when a worker leaves your business. This can happen if the employee goes to a competitor or starts their own firm that competes with yours.
Since they know your clientele, they can attempt to entice them to leave your company for theirs.
And if you happen to land a few high-performing talent, then an NDA can reduce the chances of former employees using their skills when working for a competitor.
If you’re worried about your employee churn rate, you’ll find NDAs can help deter employees from leaving your company too quickly. This will give you some protection for the investment you make in training them.
Some employers go as far as to include other clauses in the employee agreement, such as a payback clause, which requires the employee to repay you for training expenses if they leave within a specified time frame.
At the end of the day, when properly exercised by the employee and the employer, NDAs can help minimize financial loss due to data leaks.
The Cons of Using Employee Non-Disclosure Agreements
It’d be great if you could use NDAs without any risk, but as with any business decision, there are potential repercussions.
When it comes to employee non-disclosure agreements, it can push employees to leave. For example, if you have an employee that’s been with you for a while who’s considering leaving, asking them to sign an NDA may push them over the edge.
They may feel offended that you don’t trust them enough to discuss matters without the agreement. So in this case, the employee may decide to leave your company.
Also, when you introduce NDAs into the mix, you always run the risk of getting into a legal battle. For example, a former employee may break the agreement, requiring you to file a lawsuit.
Or you may have restrictions in your NDA that are a bit too broad, which can bring about legal battles brought forth by your employees.
Just to note, some courts don’t like it when companies create non-disclosure agreements that are unfairly restrictive to a person’s right to work. So even if your agreement was violated by the employee, if the court finds it too restrictive, you may lose your case.
Lastly, a non-disclosure agreement may make it more difficult to attain top talent. Some may resist signing NDAs due to the legalities involved. Others may find that the expense of seeking legal counsel before signing one to be too costly.
Making it mandatory for new employees to sign an NDA could easily backfire on your business so be sure it’s truly necessary.
When to Use an Employee Non-Disclosure Agreement
Now, there are certain circumstances where an employee NDA is a must.
In certain countries, there’s the law of confidence. This is a judge-made law and is pretty much an unspoken rule that employees are obligated to confidentiality.
However, in the courtroom, business secrets aren’t guaranteed protection without a signed agreement. So before you spill secrets to an employee, it’s a good idea to have them sign a non-disclosure agreement beforehand.
If you have employees on staff who aren’t dealing with confidential data, then there’s no need for them to sign an NDA.
Be sure to have your NDA drafted and ready to go in advance of revealing trade secrets to an employee. However, you can include language in the NDA to protect the information you revealed prior to the signing of the non-disclosure agreement.
What’s Considered Confidential Information?
In your NDA, it’s important to clarify what confidential information is. While it seems like a no-brainer to you, it’s not always clear-cut.
There’s a lot of information that may be shared during your meetings and conversations with employees. How will they know what’s confidential and what isn’t?
It’s essential to include both relevant and irrelevant information so it’s clear what’s confidential and what isn’t. Be sure to dictate whether orally transmitted information is included.
Just be sure your NDA doesn’t hinder your business activities, especially if it’s a long-term or indefinite agreement.
What to Include in Your Employee Non-Disclosure Agreement
Besides defining what confidential information is, there are other key details and clauses that should be included in your NDA.
For instance, it should label who’s bound to the agreement. This can be one or more employees if the information being revealed is to multiple parties. You can list the full names of the individuals and their addresses.
Then the agreement should state the length of the agreement. In some cases, it’s a fixed duration, such as two years or one year after the employee leaves the company.
However, there are some businesses that choose to make their NDA indefinite. While the latter may seem like the option to run with, be wary.
This can make it harder to get employees to agree to sign your agreement, which can increase your churn rate.
State why the confidential information is being disclosed. For example, it’s for consulting purposes or to bring aboard the employee to work on a special project.
Identify the forms of delivery the confidential information may come in, such as emails, oral conversations, documents, letters, handwritten notes, and so on.
Be sure clearly state what’s considered confidential information and what isn’t. This way, there’s no confusion about what details they can discuss outside of the “circle.”
Then detail the ownership of the information, such as who it belongs to – in this case, your company (or a client’s company). Be sure to state that the confidential information can’t be used or shared by the parties.
This will prevent them from sharing details with someone outside the business to use. In this case, they may try to make it appear that the individual “discovered” the information on their own.
Other key details you want to include are how legal disputes and fees will be handled.
What Happens When Your NDA is Breached
In the event an employee decides to breach your non-disclosure agreement anyway, there are several things you can do. For starters, you want to file a lawsuit with the court.
You can sue the individual who violated your agreement for any damages that ensued. Or you can ask the court to stop the individual from sharing any more confidential information.
This is plausible if no damage was done and isn’t expected to occur.
Creating Your Own Employee Non-Disclosure Agreement
Think your business needs to use employee NDAs? Then you’ll find it’s simple to do (once you have all the legal clauses out of the way).
It’s a good idea to consult with an attorney when drafting your NDA to ensure everything’s covered and to eliminate any gray areas.
Once you’re done drafting it and it’s ready to sign, you can upload it to a platform like eversign to email to recipients. The platform allows users to sign the document electronically either using a pad (tablet, mouse pad, or smartphone), uploading a signature image, or via a pre-made signature created by the platform.
It makes the process quick and easy for everyone.
Thinking about using employee NDAs? Let us know in the comments how you plan to use them to protect your business!