NDA red flags checklist
10 things in a Non-Disclosure Agreement that should make you pause. Not every NDA is standard. Here's what to watch for.
One-sided obligations
Does the NDA only bind you? Mutual NDAs are standard in most business relationships. If only you have confidentiality obligations and the other party doesn't, the agreement isn't balanced.
One-way NDAs that put all the burden on you while the other party can share freely.
Overly broad definition of confidential information
"All information" is too wide. The definition should be specific enough that you know what's covered and what isn't. Vague definitions create uncertainty and make it hard to know when you're in breach.
Catch-all definitions that classify everything as confidential. You need to know the boundaries.
No time limit
NDAs should have a clear term. Two to five years is typical for most business information. Indefinite confidentiality obligations are unreasonable unless you're dealing with genuine trade secrets.
Perpetual or indefinite obligations with no end date. Most business information loses sensitivity over time.
No carve-outs for public information
There should be exceptions for information that becomes publicly available, that you already knew, or that you received independently from a third party. These are standard carve-outs. If they're missing, ask why.
Missing standard exceptions. Without them, you could be liable for protecting information that's already public.
Non-compete hidden inside the NDA
Some NDAs include restrictive covenants disguised as confidentiality obligations. Read every clause carefully. A non-compete buried in an NDA can restrict your ability to work with competitors or in certain markets.
Restrictive covenants dressed up as confidentiality terms. They limit your business and they don't belong in an NDA.
No right to disclose to advisors
You should be able to share confidential information with your lawyers and accountants. Professional advisors need access to do their job properly. If the NDA prevents this, it's impractical and potentially harmful.
No permitted disclosure to professional advisors. This makes it impossible to get proper legal or financial advice.
Excessive remedies and penalties
Watch for liquidated damages or penalty clauses that are disproportionate to the potential harm. Injunctive relief is normal for confidentiality breaches. Fixed financial penalties often aren't reasonable.
Disproportionate penalty clauses. If the penalties don't reflect realistic damages, push back.
Jurisdiction you're uncomfortable with
If you're a UK business and the NDA says disputes go to Delaware courts, think twice. Enforcing your rights in a foreign jurisdiction is expensive and time-consuming. The governing law should be practical for both parties.
Foreign jurisdiction that makes it costly or impractical to enforce your rights if something goes wrong.
No return or destruction clause
The NDA should say what happens to confidential information when the agreement ends. Should you return it? Destroy it? Certify destruction? If the NDA is silent on this, raise it before you sign.
No post-termination obligations for handling confidential materials. This creates ongoing exposure.
Residuals clause missing
A residuals clause protects you from claims about information your team remembers but doesn't actively use. People retain knowledge. Without a residuals clause, you could face claims simply because someone on your team recalls something from the engagement.
No residuals protection. Without it, you're exposed to claims over information retained in your team's memory.
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