IT Employment

What consultants should consider before signing an NDA

Before you sign an NDA, be sure you're clear about the terms of the agreement. Chip Camden, who has signed his share of NDAs, offers some guidance.

 Non-disclosure agreements (NDAs) always make me feel a little bit queasy. Why is that? After all, I'm only agreeing not to blab my client's or prospect's secrets to the world. Am I uncomfortable because I'm a blogger, so I almost involuntarily blab everything? No, there are some secrets that I'm quite capable of keeping even from Google, so it must be something else.

Let's take a closer look at NDAs to see if we can figure out my problem.

What is an NDA?

An NDA is a legal agreement between at least two parties not to disclose certain information to anyone else. You might be asked to sign an NDA before you've even signed a contract for an engagement, because the prospect may need to share specific information with you to see if you'll be a good fit.

The kind of information protected by an NDA typically includes trade secrets, business strategy, information about customers, and anything else that the prospect thinks might be disadvantageous to them if it fell into the wrong hands. For software development consultants like me, this usually includes access to their source code, proprietary algorithms, and design documents.

An NDA is not a non-compete... right?

Just because you sign an NDA doesn't mean that you can't go to work for the other party's competition, unless the agreement explicitly includes that restriction. But if you have been made privy to advantageous trade secrets of one party, how are you going to avoid using that knowledge to the advantage of your new client who competes with them? In practice, you may have to avoid working for their competition for a period of time to prevent an ethical or even legal conflict. This could restrict your available business, especially in highly specialized niches.

How much information are you cloaking?

Because each NDA you sign essentially places a cloak over part of your knowledge base as far as future work is concerned, you'll want to know exactly what sort of information you're signing into obscurity. Typically, NDAs only cover information that isn't made public through other channels -- so even though your client's next version is a secret today, once it's released, you can talk about it all you want (but even then, you must restrict your public discussion to matters about the subject that are publicly disclosed and not the secret sauce that makes it so special). Make sure your agreement includes this provision and that it doesn't require you to keep secret what everyone else already knows.

How long do you have to keep mum?

Unless you're prepared to carry these secrets to the grave, you'll want to have a term specified in the agreement for how long you must keep the information confidential and for how long the agreement remains in effect. If the latter is unspecified, you could be held to confidentiality for information disclosed to you after your engagement has ended.

Many NDAs specify that the obligation to secrecy continues past the term of the agreement, meaning that anything disclosed to you while you were under the agreement must be kept in confidentiality thereafter, unless it is subsequently made public.

The agreement may specify that you have to return all copies of all materials upon the request of the other party. This seems a bit archaic in the digital age (how do you return a digital document?), but in that event, you'll need to make every effort to erase all digital copies.

Who's included in the NDA?

If people work for you as employees or subcontractors, it may be necessary to share some of the protected information with them in order to fulfill your engagement. Make sure that the NDA includes a provision for those people.

You know the Benjamin Franklin quote, "Three can keep a secret, if two of them are dead." Make sure your subcontractor/employee has also signed an agreement that binds them to the same level of secrecy before you spill the beans. Pay attention to provisions in the NDA about what constitutes "need to know" and "appropriate efforts to keep the information secret."

What are the consequences of breaching an NDA?

Many NDAs include a paragraph stating that the damages incurred by a breach of the agreement could not be adequately remedied by an action at law and, specifically, grant the right to seek an equitable remedy; that is, instead of paying damages, the court could order you to perform the terms of the agreement. In any case, make sure you understand the consequences of non-performance before you sign on the line.

Sample NDAs

Here are links to several sample NDAs:

http://www.techrepublic.com/downloads/abstract.aspx?docid=971045 (TR Pro membership required)

http://www.homebusinessonline.com/downloads/b10304.txt

http://www.bitlaw.com/forms/nda.html#Agreement

http://www.docstoc.com/docs/2946224/Sample-Non-Diclosure-Agreement-(NDA)

Now I know why I get butterflies

It's a legal obligation, duh! And like all legal agreements, you don't want to enter into it lightly.

I am not a lawyer, nor do I hope to be one when I grow up -- should that ever happen Find somebody who did want to become a lawyer when they grew up, and ask them what your rights and obligations would be before you decide.

Thanks to TechRepublic member Jaqui Greenlees, who suggested that I write about NDAs.

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About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

10 comments
mikifinaz1
mikifinaz1

I also have an NDA and other legal documents related to this issue that I bring up when this issue comes forward. So far this has shocked several companies and I have found myself being interviewed by both the client and his lawyer, which in the end worked out well for all of us.

blogs
blogs

A basic concept in any NDA is that it is two sided, and that BOTH sides have valuable business secrets that they wish to remain confidential. (Why would a client hire you if you do not bring anything of value to them?). All terms of an NDA should apply equally to both parties! There should never be any term that applies to one party, but not to the other. If the client expects that you should be bound to a condition to which they cannot agree to be bound, then find another client.

erahm1
erahm1

In our company we have the habit to include a NDA into the contracts we have with software companies. The advantage is for long term contracts that we have a general NDA which is applicable to all employees of our company and the service provider so we do not have to return everytime to sign one by individual. While you are already in contract negotiations, legal is already involved, so the NDA can fit in this perfectly. About the exclusion to work for the competition of the company, in some countries it has no legal value because it is illegal. Some countries are very strict in freedom of work so even when you sign a contract or NDA which explicitely forbid you to work for the competition, it has no legal value as the law is above every contract/nda document. That doesn't mean you can use trade/company secrets because this is something totally different and of course as mentioned the ethical part you have to consider which is very important if you want to keep in business. There is a relationship of trust and if do not respect this, don't fool yourself because it will never restore just like in a personal relationship.

@Shay_Ginsbourg
@Shay_Ginsbourg

The bottom line is that the NDA must be signed in order to start a real process. No way around it. I wish various consultants would also comment on Chip's important article from their past experiences. However, let's keep in mind not to think of rare extreme cases as the common rule of happening. *

Sterling chip Camden
Sterling chip Camden

I suppose it's possible that in order to provide information to a prospect that would enable them to determine whether you're right for the job, you might want to sign them to secrecy as well. I never have, but have you?

Sterling chip Camden
Sterling chip Camden

... that lets them know that you've explored the issue before. You know, I think bravado is 3/4 of the law...

Sterling chip Camden
Sterling chip Camden

When two business are trying to form some sort of partnership, then I agree with you. But as a consultant, why do I need to share any of my secrets with my clients? The NDAs I've signed have always been one-sided: I agree to protect the information my client shares with me. I would make it two-way if I had anything to hide, but I haven't yet.

JohnMcGrew
JohnMcGrew

...but I'd have to have you sign an NDA first.

blogs
blogs

Making legal agreements like NDAs symetrical to both parties is simply good practice, even when you don't (initially) think there is any risk. First there is the matter of simple respect. If the client doesn't respect your knowledge/ability then . . . . As to actual "secrets", most of the material you deal with coming from most clients will not be confidential. But, some will be. However, most of the service you perform comes from your (proprietary) knowledge/ ability, and some may well be confidential. Do you really want to do business with a client who refuses to even acknowldege that you have knowledge and ability which might be proprietary, and/or would refuse to respect that in writing? I did once refuse to do business with a customer who wanted an NDA that said our company's knowledge was of no value and that no confidentiality was due. I later saw an article in Forbes of Business Week about the customer that noted their reputation for stealing the trade secrets of others.

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