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How do you make a good non-disclosure agreement?

These days, intellectual property is the lifeblood of many businesses. Innovation is what keeps companies thriving -- which means that what your employees know could really hurt you if they take that information and sell it to a competitor.

And some competitors aren't above poaching a key player from another company if they think it will give them an edge in a highly-competitive industry.

That's why non-disclosure agreements are so important. Unlike non-compete agreements, which seek to limit where a former employee can work and when, non-disclosure agreements simply keep former employees from spilling everything they know about your business practices, products in development, client lists and more to the new boss.

An effective non-disclosure agreement shouldn't be complicated and require a legal degree to follow -- plain language works best and leaves less room for confusion. Every non-disclosure agreement should include the following:

  • A statement of who the non-disclosure agreement covers. For example, you could specify any competitors, business associates, media outlets and agents.
  • A statement of what is considered confidential or proprietary information. What is it you are specifically trying to protect?
  • A statement making it clear that the signer can't simply take the information and use it for himself or herself. For example, you don't want a junior investment broker to start up his or her own firm and take your client list to get started.
  • Other key terms of the agreement. Under what terms is it acceptable for the signer to breach the agreement? For example, you generally can't trump a court order with a non-disclosure agreement. You also need to establish whether or not the information is to be kept confidential forever or for a limited time only. Since most intellectual property gets stale quickly, consider how long something would remain useful in your industry. Two years is often sufficient to protect your interests without being overly restrictive.

In general, if you have something that's worth protecting through a non-disclosure agreement, it makes sense to hire an attorney to draft the agreement. An attorney can find a balance that will allow you to protect your interests while not being so restrictive that a court could find the agreement unconscionable (and therefore unenforceable).

Source: Forbes, "The Key Elements Of Non-Disclosure Agreements," Richard Harroch, accessed Aug. 04, 2017

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