Human resources advice

How using employee NDAs protects your business

by
Cory Shrecengost
6
minute read
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With the amount of hard work and dedication required to build a successful company, no business wants its secret sauce to fall into the wrong hands or compromise the privacy of its customers. It’s why businesses often use employee NDAs—an effective way to protect your most private and valuable information.


If you're considering using an NDA for employees, it's important you understand the benefits, the downsides, what should be included, and how to make your NDA as easy to sign as possible.


Here's what you need to know.


What is an employee non-disclosure agreement (NDA)?

An employee NDA (non-disclosure agreement) is a legal contract between you and your employees in which they agree not to disclose any confidential or proprietary information about your company.


Using NDAs for employees is becoming an increasingly common practice, as more and more businesses focus on protecting the data they collect and the concepts they create from competitors.


When should you use an NDA for employees?

The short answer is anytime you want to protect your business’s private or proprietary information. However, there are a few more specific benefits of NDAs to consider.


To protect your business’s private information

An NDA is most useful in helping protect your company's most confidential information—trade secrets, customer data, financial records, and much more—not just from competitors but also from anyone else who doesn’t have authorized access to your private data or intellectual property. This can include customers, unauthorized employees, or other external organizations.


When employees sign an NDA, they are agreeing to refrain from unapproved disclosure of confidential information, especially in a way that could be harmful to your business. Though, be aware that an NDA isn’t an iron-tight defense to information leaks—people can still purposely or accidentally divulge private information, but an NDA provides good incentive for employees to think twice about what they share.


To prevent competitors from learning your secrets

Although your employees bring plenty of value to your company, you also invest a lot of time, training, and education into them. Losing those investments, especially to competitors, can be disappointing at best or costly at worst.


If you've ever been concerned about employees leaving and taking your confidential information with them to a rival company, an NDA encourages ex-team members to be cautious about what they disclose. Whether they quit or get terminated, former employees who signed an NDA won’t be able to share your proprietary information with your competitors without risking legal action.


To ensure employees know what information is confidential

Although some types of information are more easily understood as proprietary, like a secret recipe, a lucrative algorithm, or a private clientele list, others may not be so obvious.


Generally, most employees don’t mean to maliciously share or use confidential information, they may simply be oblivious as to what is disclosable and what isn’t. That’s why an employee NDA is a good way to help employees understand boundaries and clear up any confusion about what information should remain secret.


What are the downsides of using an employee NDA?

While the pros outweigh the cons, it’s still important to be mindful of the risks that come with using employee NDAs.


For one, NDAs can be difficult to enforce. If an employee does violate their NDA, depending on what information was divulged, you may find it tricky to prove in court that the NDA was breached.


Additionally, courts can rule in favor of the violating employee if the NDA is deemed too restrictive. Plus, even if you do win in court, legal fees can be expensive.


NDAs, if used inappropriately, also have the potential to create feelings of mistrust between you and your employees. If your teams feel like they’re being pushed to sign an NDA to keep their job or gain a promotion, this can lead to resentment or even dissuade employees from sharing their best ideas.


Employee NDAs that are too restrictive can also make potential new hires less enthusiastic to join your company.


It’s best to be prudent and reasonable with the details of your NDA in a way that keeps your business protected while still encouraging a collaborative, innovative environment for your employees.


Are NDAs worth it?

Ultimately, you’ll need to weigh the costs and benefits of NDAs for your company, but using this agreement is generally a good idea for businesses that need to safeguard confidential information.


An NDA is primarily an effective preventative measure, which is helpful especially if you’ve had issues with data leaks in the past or if you want to tighten up security around any highly-sensitive material.


Of course, not every employee will be happy about signing an NDA, but there are a few things you should keep in mind before asking to make the process go smoothly.


How do I ask someone to sign an NDA?

The best way to approach getting an NDA signed is to simply explain to employees why you're asking them to sign. Be honest and transparent about your reasons, and explain how it will benefit them as well as the company.


Once you've approached your employees about NDAs, give them some time to read over the contract and think about it before asking them to sign. And if they have any questions, be sure to answer them sincerely and thoroughly.


If you’re requiring employees to sign an NDA before they begin employment, you can also present the agreement along with other hiring documents.

Looking for a free NDA template?
Customize your own employee NDA with our free NDA template.
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What should be included in an employee NDA?

Below are a few elements that any employee nondisclosure agreement should have, but you may need to include additional information and clauses depending on the specific needs of your business. For that reason, before asking employees to sign your NDA, be sure to consult with a lawyer.


Involved parties

These include the employer (the disclosing party), the employee (the receiving party), and all other involved representatives (officers, directors, partners, managers, etc.).


Confidential information

Specific details about what data or IP is considered confidential and protected by the agreement.


Confidentiality obligations

Disclosure provisions and what counts as a violation. The NDA can also state that your company owns all concepts produced by the employee after they leave.


Time frame

The date when the agreement becomes valid and the date when it expires.


Signatures

All involved parties should sign and date the agreement after reading thoroughly.


How do electronic signatures make completing NDAs a breeze?

If you're looking for a way to make the NDA process easier for your team, use an eSignatures solution like Dropbox Sign. All you need is an internet connection to sign documents electronically from anywhere in the world, which is especially helpful when you have remote employees on your team.


With Dropbox Sign, once you’ve determined the standard language of your NDA, you can eliminate most of the manual work by templating it. With a pre-made template, preparing an NDA can be as simple as entering your employee’s contact information and hitting send.


Plus, you get the ability to track who has and hasn’t signed the NDA and send out automated reminders—keeping the process moving without a hitch and making signing both easier and quicker for employees.


Make signing fast and smooth with eSignatures

In short, an NDA can be a valuable tool for protecting your business, but it's important to think through all the implications of using one in your company before you begin. Make sure you understand what information is covered by the agreement, and consult with an attorney if you have any questions.


If you’re looking for a tool that will make signing NDAs as smooth as possible and speed up your hiring process, Dropbox Sign helps new employees finish onboarding paperwork up to 3x faster.

Set up your NDA now
Sign up for a free trial of Dropbox Sign and begin sending your own employee NDA within minutes.
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