An NDA can be used in a variety of situations, such as the following scenarios:
1. Hiring an employee
If you're hiring an employee who will have access to confidential information on the job, have them sign an NDA before hiring. This is especially important if some sensitive details will be discussed before the candidate becomes an employee. Confidential information could include your business' marketing strategies, customer data, future ideas, and more.
A Non-Disclosure Agreement can protect you and your business interests by deterring your employees from sharing or misusing confidential information. If the employee breaches the agreement, you have the right to take legal action against them.
Alternatively, if you don't want to create NDAs for your employees, and won't need to discuss any trade secrets prior to hiring, you can include confidentiality clauses in Employment Agreements that will protect your sensitive business information.
2. Hiring a contractor or consultant
If you're hiring a contractor or consultant who will have access to confidential business information while working with you, have them sign an NDA beforehand.
Like with employees, contractors and consultants may need access to your business's marketing strategies, customer data, or more to perform their role. With NDAs, you can provide them with the information they need to succeed while protecting your interests.
In addition, ensure you always use Independent Contractor Agreements and Consulting Agreements when hiring contractors and consultants.
3. Selling a business
If you're selling all or part of your business through the sale of shares or assets, a prospective buyer may complete their due diligence by requesting to see your financial books or other confidential records. Before you disclose anything, present them with an NDA and ask them to sign.
When selling a business, confidential information can include knowledge or documentation relating to employees, trade secrets, clients, profits, or losses.
4. Discussing an invention or idea
If you plan to discuss an invention or piece of intellectual property with someone, have them sign an NDA before disclosing any information.
To evaluate an invention, investors or potential buyers often require access to confidential information about it before deciding whether they want to be involved. An invention could be a:
- Product
- Plan
- Design
- Recipe
A Non-Disclosure Agreement allows investors, buyers, and other collaborators to make informed decisions without having the right to share or misuse your intellectual property.
Generally, you shouldn't describe an invention in an NDA to ensure that the evaluator can't read the agreement, gain knowledge about your invention, and refuse to sign. By excluding a description, the evaluator must sign the NDA before disclosing any information about the invention. The mere description of your invention could allow someone else to steal your idea.