Why Innovative New Companies Should Use Employee NDAs

Are you protecting your company’s assets?

Could a new employee quit suddenly … and then share crucial proprietary information with your competitors?

Is information sharing hampered within your company because you’re worried about important secrets falling into the wrong hands?

If you have an innovative idea, invention or business process, it’s time to learn about what a nondisclosure agreement, or NDA, can do for your company and for your own peace of mind.

What an Employee NDA Does

An NDA can protect your business in many ways, and is one of the most important documents you can have a new employee sign. Not having any NDAs in place at all could potentially be a serious weakness of your current business setup.

A properly drafted and executed NDA creates confidentiality between two parties to prevent one of them from disclosing certain information to outsiders.

Indeed, in drafting a nondisclosure agreement, you should be specific as to what information is covered to make sure that what you want covered is in there and also to provide proper notice to the person signing it.

In other words, your employee should have no doubts as to what information mustn’t leave the company. They should also be clear about the potential penalties if information is shared – whether inadvertently or deliberately – with someone outside your company.

Many NDAs also cover the period after an employee’s departure from a company, which can be crucial to maintain the integrity of your important intellectual property — including intangible assets such as a new technology, patents or trade secrets.

How an Employee NDA Can Help Protect Your Business

You may think your company is too small or even too new to care about protecting corporate information, but, no matter how long you’ve been around or how many employees you have, NDAs are a must, and here are a few reasons why. An NDA:

• Makes it clear what information is confidential. While you might think it’s obvious that your employees shouldn’t chat about your as-yet-unreleased game-changing new product while having a beer with their buddy from another firm, they may not realize this. (This can be particularly the case if you have a young workforce fresh out of college.) An NDA spells things out so that employees know exactly what they’re supposed to be keeping to themselves.
• Provides a remedy for breach. Even if your employees know the importance of keeping certain information confidential, without a signed agreement, you are left with no remedy in the case of a leak. The NDA should clearly state the ramifications for disclosures of confidential information.
• Covers accidental disclosures of information. You may think your employees are trustworthy and don’t need a signed document to keep them loyal. You may even be right! Still, accidental disclosures of confidential information happen and, when they do, an NDA can help you fix the situation by putting at least some of the burden on the party who divulged the information. This can save your business some hassle — and even money — in the case of an accidental leak.
• Clarifies who owns IP (intellectual property) produced by employees while under your employ. For instance, if your employee creates a new piece of software while under your employment, this would normally be expected to be your company’s IP rather than the employee’s IP. Having this clarified in an NDA, though, can avoid any ambiguity.
• May provide future evidence. If you end up needing legal protection for your trade secrets, having an employee NDA in place early on can be used to show that you took reasonable efforts to protect your information from the start. This would strengthen your argument that your trade secrets deserve legal protection.
• Can show an employee’s true colors. The reaction of a potential employee to a proposed employee NDA may tell you something about their intentions regarding your company and its prized assets. If they balk at signing it, you may want to dig a little more deeply into why. They may have valid reasons, but, if they don’t, you may have just dodged a potential bullet.
• Gives a professional appearance. If your business is looking for investors, they will be impressed that you are doing everything you can to protect their investments. Signed NDAs show them you’re serious about your company’s success now and well into the future. They may even potentially raise the value of your business.

Keep in mind, however, that an NDA is not a substitute for strong information security measures. It’s still vital for you and your employees to make sure that information and data are protected by (for instance) using secure passwords and having robust network security policies. Don’t forget about the physical side of things too: sensitive files should be kept locked away when not in use, for instance, not left lying on employees’ desks for anyone else to see.

When to Get Your Employees to Sign an NDA

Some key situations in which you might use an NDA with your employees include:

• When hiring, as a condition of the job offer. This is the most obvious scenario, but if you haven’t already got NDAs in place for your existing employees, you can still go ahead and introduce them.
• When offering a promotion. If an employee is asked to sign an NDA after being employed for a while, they should receive some form of “fresh consideration” in return. This means that tying an NDA to a promotion (or at least a raise) makes good sense, especially if your employee is going to be privy to additional sensitive information after the promotion.
• When terminating an employee. It might be appropriate to ask an employee to sign an NDA in return for a severance agreement. This can protect you against future lawsuits from aggrieved employees and can help reduce any risk of negative press attention (as the NDA can prevent the employee from disclosing the terms of the severance agreement).

Overall, NDAs protect your business by helping keep your most important information safe and secure — and this can give both you and your investors great peace of mind moving forward.

If you are an innovative company, there’s simply no good reason not to at least explore the possibility of having NDAs for your employees. Doing so now can mean avoiding a huge headache — and even the collapse of your business — later.

About the Author: Erika is a content strategist and producer who believes in the power of networking and quality writing. She’s an avid reader, writer, and runner.