Before You Sign That Nondisclosure Agreement
"I left corporate America a while back to start my own consulting firm. I've pitched my services to a couple of large companies, but nobody will even talk to me until I sign their standard form of nondisclosure agreement (NDA). I realize this is standard practice, but I'm started to get nervous that I might be 'signing my life away'. Could you give me some tips on what to look for when I'm given an NDA to sign?"
Nondisclosure agreements (NDAs for short), also called "confidentiality agreements", are the bane of the independent consultant's existence. Most companies won't talk to you until you sign one, because they're nervous you will blab all of their trade secrets to competitors - something you as a professional would never do anyway. Most NDAs are fairly harmless, but every once in a while you will see some "gotchas" in these. Here's what to look out for.
First, look at how the company defines "confidential information" in the NDA. Is the company required to tell you (preferably in writing) that something is confidential, or are you required to keep EVERYTHING you get your hands on confidential, including the copy of
The Wall Street Journal
you happen to pick up in their office lobby? If it's the latter (most attorneys use a "shotgun" rather than a "rifle" approach when drafting NDAs, because they really don't know what kind of information the company is going to show you) make sure the "laundry list" is reasonable. Look out for language that requires you to keep secret the "existence of a business relationship" with the company - this may prevent you from using the company as a reference after your consulting job is finished.
The "laundry list" should include only items (such as customer lists and intellectual property) that any company would view as confidential and proprietary. If the list includes intangible items such as "ideas", "know-how", "skills", "concepts" or "knowledge" - be careful. The company might look at anything you learn on the job as confidential, which can cause problems for you down the road (see below).
Every NDA contains two basic agreements:
an agreement that you will keep all Confidential Information strictly confidential, and will not disclose it to anyone without their approval; and
an agreement that you will not "use" any Confidential Information for any purpose other than to perform your consulting duties for the company.
The first clause (called the "nondisclosure" clause) is relatively harmless - make sure you are permitted to disclose Confidential Information to your attorney and other employees of the company "if necessary in connection with the performance" of your duties under the agreement.
It's the second clause (called the "nonuse" clause) that can sometimes be a "gotcha". If not carefully drafted, this clause can act as a "backdoor noncompete agreement", preventing you from working for other companies where you would have little or no choice but to use knowledge and information you gained while working for the company that made you sign the NDA.
Most NDAs have a clause requiring you to return copies of all Confidential Information in your possession when the consulting job is done. Make sure this clause allows you to destroy the information instead of returning it as long as you certify to the company in writing that you've destroyed it. Otherwise (unless you keep meticulous records) the company may demand that you return information months or years after the consulting job is over and you just . . . can't . . . find it.
It's probably a good idea to have an attorney look at the first few NDAs you are asked to sign - most attorneys will only charge a half-hour of their time. After you've done a few, you should know enough to be able to spot the issues on your own.
One more thing: beware the company that "buries" an actual noncompete clause (as opposed to a "nonuse" clause) in the fine print of their "standard" NDAs without clearly labeling the agreement a "noncompete and nondisclosure agreement". If a company doesn't notify you of the noncompete language, and you spot it when reading over the NDA, save yourself some legal fees, hand the (unsigned) form back to them, and walk out the door.
Cliff Ennico (
) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest book is 'Small Business Survival Guide' (Adams Media, $12.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
. COPYRIGHT 2006 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.