Are NDAs even worth signing for employees? Are they even enforceable?


3

As an employer, is it even worth getting employees to sign an NDA? Do they provide any significant legal protection (enforceable)?

Most startups don't even have the resources to pursue a legal avenue in the event someone decides to act against an NDA.

Does that mean non disclosure agreements are completely useless for startups to use (for employees)?

Legal NDA Legal Documents

asked Apr 16 '14 at 18:26
Blank
Jason Wood
17 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

4 Answers


2

There is no harm in drafting a simple NDA (no need to get expensive lawyers involved) and having employees sign it. At a minimum, it will give your employees a pause before spilling your proprietary info in an interview or considering starting a company themselves. It's not the general idea that you are protecting, but learnings from your activities as a startup. Learnings come at a cost, and you don't want your competitors getting that info for free or cheap. Some research activities (market conditions, user segmentation, bundles and pricing, etc) are costly, but the outcome can be summarized in a sentence.

You don't want to send signals of being overly paranoid over your idea, just show that you are smart, practical, and reasonable.

Also, have your employees sign something that states that what they produce on work time and using your equipment/resources belongs to you. By default, engineers own copyright to the code they write, just like artists own it for their work, so you want to make sure to transfer ownership of the code produced for you to you. Don't forget the typical language for at-will relationship that means either party can terminate relationship for any reason and without advance notice.

answered Apr 17 '14 at 19:48
Blank
Webbie
2,835 points

2

It depends on the language of the NDA, but yes, an NDA can be legally enforceable.

If you have few resources to actually pursue legal options if it is violated, having one can still serve as a strong indication that you don't want your employees spreading proprietary knowledge. Most employees will follow through and keep their side of the bargain, even if you don't have the financial ability to enforce it, so I wouldn't say it's "completely useless".

But in addition to the above, having people sign an NDA also comes with a cost. Aside from signaling that you want to protect what you're doing, you're also signaling that you don't trust your employees to keep the company's best interests at heart, and act intelligently and responsibly.

Finally, for much of what many choose to protect with an NDA, that's actually the opposite of what you want. For some reason, people think that if their idea gets out, everyone else is going to realize how brilliant it is and steal the idea. It rarely actually works that way. In many ways, getting your ideas out early on will help you validate it, and help you discover who your competitors and customers are.

The bottom line is that, in my opinion, most places won't have a net benefit from requiring employees to sign an NDA.

answered Apr 16 '14 at 18:55
Blank
rbwhitaker
3,465 points
  • I assume you're referring to NDAs being enforceable in the USA? Other countries may differ. – Nick Stevens 7 years ago
  • @NickStevens, you're correct. I assumed USA without stating it. YMMV, depending on where you live (even from state to state, within the US). – rbwhitaker 7 years ago
  • I like all the arguments, but my bottom line would be - there is no harm in drafting a simple NDA and having employees sign it. – Webbie 7 years ago

1

I concur with the answer by RBWhitaker. While NDAs do have their place, they're a distraction for startups and their employees.

Unless your startup gravely depends on the technology it runs on (most don't), you can do without NDAs and remove his needless friction.

answered Apr 17 '14 at 18:13
Blank
Bruce Schwartz
767 points

1

If you start a software and don't have at least three things in place with your employees: confidentiality agreement, intellectual property agreement and a non compete, you are absolutely insane. And if you don't perform background checks on all employees as a prerequisite for hire (including drug tests), you are absolutely insane + 1.

NDA's, IP agreements and non-competes are absolutely enforceable and even though you may not enforce them now when you're small, you can enforce them later. They can also be a powerful deterrent against silly behavior.

There will come a time when you may need these and if you don't have them in place, you're sunk. I 100% disagree with the idea that NDA's signal distrust in employees -- it's all in how you deliver it. NDA's, IP agreements and non-competes are standard for doing business in the software industry.

I know there are many feelings on non-competes, but my personal opinion is any potential employee who won't sign them is better off not working for you. Most non-competes are not incredibly far reaching (i.e. if you are a software developer just because you sign a non-compete doesn't mean you can't ever write software again). But if you work at Apple's top secret project, you may not be able to go to Microsoft right away. Non compete's are meant again as a deterrent from you working at a direct competitor's site.

In addition, if you ever imagine a time when you may take in investment capital, the lack of these agreements will speak loudly as to your professionalism and maturity as an entrepreneur. Eventually, as you grow, you'll need them anyhow and then putting them in place later is a lot more challenging than putting them in place starting out.

I've seen too many startups with big hopes only to see employees create competing firms. I've seen employees personally register for one-off patents the company clearly owns and I've seen employees attempt to collect customer receivables by creating company's with the same name. The list goes on and on and on.

Why roll the dice with your dreams? Think of it this way: it's a piece of paper (or two) that provides you enormous leverage and protection starting out. You should read Joel Spolsky's post on IP agreements.

Also, resist the urge to copy a buddy's NDA, IP and non-competes. You really need good legal counsel in the state in which you operate and its worth the money to have these created for you and reviewed periodically.

answered Apr 21 '14 at 17:54
Blank
Chris
337 points

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Legal NDA Legal Documents