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Do you really need a nondisclosure agreement?

Nondisclosure agreements had, at one point, become so common that just about every company had every employee sign one — and that actually turned into a problem. Employees balked at signing agreements that they felt were unfair, and courts sometimes refused to enforce agreements when they were overly broad.

It’s much more effective to only ask for a nondisclosure agreement when it makes sense. Here are the times you really need a nondisclosure agreement with another party to protect your interests:

  1. You need to disclose proprietary information in order to present your ideas or plan to a potential investor, distributor or business partner.
  2. You are using the services of a company or individual who may, in the process of providing those services, gain access to important or sensitive information. IT services are one example of where that could happen.
  3. You’re demonstrating a new product or piece of technology to a potential licensee or buyer.
  4. You’re hiring a new employee who will have access to proprietary information or sensitive information, and you want to ensure that the employee doesn’t take confidential data to another company.
  5. You’re promoting an employee who will now have access to that kind of confidential data as part of his or her new position.
  6. You’re thinking of selling the business, and need to share financial or marketing data with a prospective buyer.

Generally speaking, outside of these situations, you probably don’t need to bother with a nondisclosure agreement. Remember, those nondisclosure agreements that you do use need to be specific and focused. You don’t want an agreement that’s so general it can be misinterpreted or end up being unenforceable.

The breach of a confidentiality agreement can be a major issue for your company’s future. If it happens, take it seriously and get the appropriate legal assistance.