Published May 03, 2012
When you begin working toward turning your million-dollar business idea into a reality, how can you ensure people you hire and/or consult with along the way don’t take your plan and run with it?
Make sure they sign a non-disclosure agreement (NDA), also known as a confidentiality agreement, say legal experts. An NDA is a legal contract between parties that establishes the confidentiality of shared knowledge or materials and restricts third party access.
NDAs are particularly important if your business is centered around a certain invention, idea, business method, or other original element. Such agreements can be tailored to suit the business owner’s needs; they can cover everything from business records, finances, customer lists and information, business plans, marketing plans and other information.
“I think any business that has any confidential information should have an NDA with their business partners and employees,” said Craig Delsack, a New York City-based business lawyer specializing in intellectual property, media and technology companies. “If you want to have a competitive edge, you have to have an NDA.”
At what point should employees or workers sign an NDA? As soon as possible.
“Loose lips sink ships,” Delsack added. “The minute you’re going to start talking about your business or your idea that you feel has economic value to you - before you do that, you should have an NDA.”
There are several different kinds of NDAs, according to the Small Business Administration (SBA). In cases where one party discloses information to another party, a unilateral agreement- or “one-way agreement” - is drawn up. The receiving party must guarantee that they will protect all knowledge and information they are privileged to regarding the business operations.
When multiple parties need to divulge information or materials, a mutual agreement is made, according to the SBA. These documents require all parties involved to protect the knowledge and information entrusted with them, per the agreement. This type of NDA is commonly used when businesses enter into some sort of joint venture.
Here are some things to keep in mind when considering what to include in your NDA, according to Delsack:
* For how long do you want employees to keep your company information confidential? For something like a company trade secret, from which the company drives economic value, the answer may a longer period, rather than a shorter one. Otherwise, include an expiration date after which parties are free to reveal company information.
“Trade secrets you want to keep secret forever. You don’t want to have an expiration on that,” Delsack said.
* A well-drafted NDA should limit the purposes for which the confidential information may be used, and distinguish between the treatment of confidential information and trade secrets.
* Think about whether your NDA will include non-solicitation language. You don’t want people to steal your business secrets – or your employees.
“There’s more information and elements to a company that it derives its economic value from, more than just confidential information and trade secrets. It’s the human capital, it’s the people,” Delsack said.
* Include as many restricted activities as you like in the NDA - and make sure they are all covered in one document.
* Consider how broad you want those restricted activities to be, how far those rules should reach, and the potential ramifications. For example, many of Delsack’s technology industry clients work for gaming companies and continue their creative work while at home, outside the office.
“Some companies are very overreaching and they tell the employee, ‘Hey, if you develop anything in our space, it doesn’t matter if you’re sleeping or awake, it’s ours.’”
Lastly, Delsack advises small business owners against just using a free NDA form from the Internet.
“Those free forms don’t cover all those little nuances,” he said. “One size doesn’t fit all. ...It’s like a water balloon - you squeeze one end of it but everything else squishes out the other side.”