Key Takeaways

  • Confidentiality agreements (NDAs) are used to protect sensitive company information and prevent its unauthorized disclosure.
  • These agreements define confidential information, outline employee obligations, and specify duration and consequences of breach.
  • Employers may require NDAs to protect trade secrets, ensure competitive advantage, and maintain compliance with legal or client obligations.
  • Not all NDAs are enforceable; courts may scrutinize overly broad or unfair terms.
  • Employees should review NDAs carefully, especially terms about duration, scope, and post-employment obligations.

Should I sign a confidentiality agreement? It is important to always pause and ask yourself if you should sign a contract before putting your name down. Confidentiality agreements are standard procedure for many companies along with their employment contracts and other business contract types. There are a few things to keep an eye out for when reading over a confidentiality agreement, also called a nondisclosure agreement (NDA), before signing. 

Confidentiality Agreement Basics

Companies will usually ask their employees or business partners to sign confidentiality agreements if they need to be sure that any private information will not be shared with other companies or individuals. A confidential culture is important in any company that deals with sensitive information or trade secrets, and NDAs are a good way to reinforce such a culture. 

If a company has had past issues with employees sharing sensitive information, they will likely require all employees to sign an NDA to prevent such problems in the future. Even if someone is very trustworthy, a company might require their signature on an NDA, because it's not a personal issue. 

Whether you are an employee, potential employee, or a contractor working with a company, if they ask you to sign a confidentiality agreement, you'll need to make sure you fully understand every aspect of the agreement. Every confidentiality agreement includes the following parts:

  • A clear definition of what the company considers confidential or sensitive information
  • The obligations of every party involved in the contract
  • The time span of the contract 

Why Companies Require Employees to Sign Confidentiality Agreements

Companies typically require employees to sign confidentiality agreements to safeguard proprietary information that could harm the business if disclosed. This includes trade secrets, customer data, marketing strategies, proprietary technology, and internal processes.

Understanding what is purpose of company getting employee to sign a confidentiality agreement starts with recognizing the business’s need to secure its competitive advantage. NDAs create a formal obligation for employees to avoid disclosing or misusing confidential information during and after employment. These agreements help:

  • Protect intellectual property and trade secrets
  • Ensure compliance with industry regulations or contractual obligations with clients
  • Prevent reputational or financial harm from information leaks
  • Establish clear legal recourse in case of a breach

Employers also use NDAs to define what constitutes confidential material and to maintain a culture of discretion across the organization.

Watch Out for Vague Language

You'll want to know what to look out for when reading over a NDA that you're asked to sign. Among these important pieces, you'll want to watch for vague or broad language. Everything should be very clearly defined, especially when it comes to exactly what the company considers confidential information. 

The following phrases suggest a broad scope and could lead to an unintentional breach of contract down the road:

  • Do not discuss anything referring to ...
  • Do not discuss anything relating to ...

It's understandable for companies to require some confidentiality from their employees and contractors, but be mindful of exactly how they are limiting you. You shouldn't be unnecessarily restricted in regular conversations. Make sure that the NDA isn't keeping you from discussing the following:

  • Information that's already available to the general public
  • Information that you already know or could figure out independent of the company
  • Information shared with you by a third party

Know the Full Scope of the Agreement

Ask yourself what exactly the confidentiality agreement is requiring you to keep to yourself and how long you will be required to do so. 

First, you need to know all of the information that is covered in the agreement and what kind of information it is. There are different categories of information which should be outlined in detail in the agreement. 

Second, make sure you're aware of how long you need to keep these secrets. Some NDAs cover the information even after an individual is no longer working with a company. 

The more specific an NDA is about exactly what information is covered, the more likely the company will enforce the agreement and even take legal action if necessary. NDAs with a very broad scope and vague information are not as easily enforced. 

If the scope of the agreement is defined, it's usually for a few years after the individual is no longer employed by or under contract with the company. 

Usually, the type of information protected is more basic like the following:

  • Customer information (credit card numbers, phone numbers, addresses, purchase history, etc.)
  • Company information (financial, inventory, sales numbers, etc.)
  • Intellectual property (innovations, trade secrets, etc.)

Negotiation is usually permitted with nondisclosure agreements, so don't panic or turn down a job simply because you notice a red flag in the contract. 

Enforceability and Legal Considerations of NDAs

While confidentiality agreements are common, not all are enforceable. Courts will generally uphold NDAs that are reasonable in scope, duration, and geographic limitation, and that do not impose unfair restrictions on employees. If an agreement is overly broad—for example, banning the use of publicly known information—it may be ruled unenforceable.

When assessing whether to sign, consider the following legal aspects:

  • Reasonableness: Courts look at whether the agreement is fair and necessary to protect legitimate business interests.
  • Clarity: Vague or ambiguous NDAs are harder to enforce.
  • Scope: Agreements should not restrict an employee from using general skills or knowledge acquired on the job.
  • Public interest: NDAs that attempt to silence whistleblowers or prevent lawful disclosures (e.g., to government regulators) may be invalid.

If you're unsure about a confidentiality clause, legal counsel can help assess enforceability.

Know the Consequences of Breach of Contract

In every contract type, the consequences of a breach of contract should be reasonable. If an NDA lists extreme punishments for breaking the confidentiality agreement, you shouldn't sign it. A common consequence for breach of contract under an NDA is termination of employment. 

Be aware of what is considered a breach of contract. Don't sign an NDA that holds you unfairly responsible for a breach committed by another party, like a co-worker or another contractor. 

Common NDA Clauses to Review Before Signing

Before signing, it's important to understand the specific terms of the NDA. Key clauses to review include:

  • Definition of Confidential Information: Ensure it’s not so broad that it includes trivial or publicly known data.
  • Permitted Disclosures: Check whether you’re allowed to share information with legal counsel or as required by law.
  • Return or Destruction Clause: Many agreements require the return or secure destruction of materials after employment ends.
  • Non-compete or Non-solicit Add-ons: Some NDAs are bundled with restrictive covenants. Make sure these additional terms are fair and clearly outlined.
  • Remedies for Breach: Understand what penalties or legal remedies the company may pursue.

Knowing what is purpose of company getting employee to sign a confidentiality agreement also means knowing how those clauses will affect you during and after employment.

Frequently Asked Questions

  1. What is the purpose of a confidentiality agreement for employees?
    The purpose is to legally bind employees from disclosing or misusing sensitive business information, thereby protecting the company's competitive advantage and intellectual assets.
  2. Are confidentiality agreements legally binding?
    Yes, if properly drafted, NDAs are enforceable contracts. However, overly broad or vague terms may be struck down in court.
  3. Can I negotiate a confidentiality agreement?
    Yes, especially if the terms seem overly restrictive or unclear. Employees often negotiate duration, scope, and exclusions.
  4. What happens if I break a confidentiality agreement?
    Consequences can include termination, legal action, and financial damages. The specific penalties depend on the terms of the agreement.
  5. Can a company force me to sign an NDA?
    While you can’t be legally forced to sign, refusal may result in not being hired or promoted, especially for roles involving sensitive information.

If you need help with whether you should sign a confidentiality agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.