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NDAs: What to Watch Out For

I finished off my masters program at UCI a few weeks ago, and like most other recent grads, I’ve started looking for a job. It’s not as bad out there as people would have you believe, but it’s just as hard as ever to find the right company. For me, that’s a company with a small team that’s working on an interesting product. Naturally, I’ve been eyeing a few startups. However, young startups tend not to have a lot of money to spend on the legal end of things, and it’s far too easy to pull down a seemingly standard legal document from the Internet, so as developers we need to be extra cautious about what we’re signing.

I was asked to sign a nondisclosure agreement (NDA) over the weekend that the CTO assured me was a standard NDA. All the investors and other employees signed it, so it must be OK. It looked normal to me, but I decided to play it safe and have my sister (a lawyer) give it a quick run-through. Turns out there were some bad bits that others might want to keep an eye out for.

  1. Typos: the “effective date” of the NDA was correct on the first page, but incorrect (a month prior) on the last page.
  2. Inconsistencies: one of the sections in the NDA referred to another section incorrectly. This is usually an indication that the company pulled down a “standard” NDA they found on the Internet and rearranged (and probably edited) things to their liking. I don’t see a professional lawyer making such an obvious mistake on a three-page document.
  3. Unusually long terms: from what I’ve been told, the standard amount is 2 years, meaning the NDA is effective 2 years after the “effective date” (the date you sign the NDA). The NDA I was asked to sign was 5 years—not a dealbreaker, but kind of long.
  4. No provision for counsel: an NDA should have a clause that allows you to share information with your lawyer. Something along the lines of:

    Therefore, the Receiving party covenants the following: Not to disclose or reveal Confidential Information received hereunder to any person except for Receiving Party’s employees, directors, counsel, agents and advisors (collectively, the “Representatives”) who are required to have such Confidential Information in order to perform their functions in connection with the Business Purpose;

  5. Clauses that don’t belong in an NDA: this one really irked me. Along with the typical NDA legalese, there was a “work for hire” clause thrown in there. It’s pretty standard in an employment contract—but has no place in an NDA.

I don’t think the company had bad intentions, and in the end, signing an NDA isn’t all that big of a deal. But as always, read before you sign or else you might just end up losing your soul.

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