What to check before you sign an NDA

A non-disclosure agreement looks routine, and most of the time it is. But an NDA is still a binding contract, and a few clauses decide whether it protects you or quietly ties your hands. Here is what to read for before you sign.

1. Is it mutual or one-way?

A mutual NDA protects information shared in both directions. A one-way NDA protects only the disclosing party. If you will share anything sensitive yourself, such as pricing, product plans or customer lists, a one-way NDA in the other side’s favour leaves you unprotected. Ask for a mutual agreement.

2. What counts as confidential?

Look at the definition of Confidential Information. Two things go wrong here:

• Too broad. “All information disclosed in any form” can sweep in things you already knew or learn elsewhere, which makes it hard to work freely afterwards.
• Too narrow. Some NDAs only protect information that is marked confidential. If your team shares things in meetings or by email without labels, those disclosures may not be covered.

A good middle ground protects information that is marked as confidential, or that a reasonable person would understand to be confidential.

3. The standard exclusions

Information should not count as confidential if it:

• is or becomes public through no fault of the recipient,
• was already known to the recipient before disclosure,
• is independently developed without using the disclosed information, or
• is received from a third party who had the right to share it.

If these exclusions are missing, the recipient can end up in breach for using knowledge it had all along.

4. How the information may be used and shared

Check the permitted purpose: information should only be used to evaluate or carry out the specific deal. Then check who it may be shared with. Employees, contractors and professional advisers who need to know, and who are bound by similar confidentiality duties, is normal. Make sure your lawyers, accountants and potential investors are covered if you will need to involve them.

5. How long it lasts

There are two clocks: how long the parties will share information, and how long the duty to keep it confidential survives. Two to five years after disclosure or termination is common for commercial information. Trade secrets are often protected for as long as they remain trade secrets. Be wary of obligations that never end for ordinary business information, and of terms so short that sensitive information is unprotected while it still matters.

6. Return or destruction

At the end of the relationship, the recipient should return or destroy the information on request. It is reasonable to allow copies kept in routine backups or required by law, as long as they stay confidential.

7. When disclosure is forced

A court order or regulator can compel disclosure. The NDA should allow it, but require the recipient to give prompt notice (where the law allows) so the owner can seek protection, and to disclose only what is legally required.

8. Clauses that don’t belong in an NDA

Read to the end. Some NDAs carry obligations that have nothing to do with confidentiality:

• Non-solicitation or non-compete clauses that stop you hiring the other side’s staff or working with their customers.
• Exclusivity or a commitment to negotiate only with them.
• Intellectual property assignments or licences buried in the boilerplate.
• One-sided indemnities or penalty payments for any breach.

If you find one of these, ask for it to be removed or dealt with in the main agreement, where it can be negotiated properly.

9. Governing law and remedies

Note which country or state’s law applies and where disputes are heard; a distant forum makes enforcement expensive. Most NDAs let the owner seek an injunction for a breach, which is normal. Watch for clauses that waive your right to defend yourself or that fix large damages in advance.

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How Baxendale helps. Upload an NDA and Baxendale reviews it against a general checklist that covers confidentiality, liability, indemnities, termination, renewal and assignment, from your side of the deal. Each issue quotes the clause it is based on and suggests the wording to ask for.

This article is general information, not legal advice. For a specific agreement, speak to a qualified lawyer.