Why do I not sign NDAs?
As a consultant and developer, I’m often asked to sign NDAs (Non-Disclosure Agreements). Here are my top 5 reasons I will not and my 5 criteria for signing one.
As a freelance software engineer and consultant, I’ve encountered numerous instances where I was asked to sign an NDA. These NDAs often come with a Non-Compete clause—something that the FTC has prohibited Non-Competes since April 2004.
While NDAs are part of normal business practices, here are the top 10 reasons I will not sign one.
1. You are at the idea stage
Let’s be honest. Ideas are a dime a dozen and are only meaningful with excellent execution. Many people have ideas but are not willing to execute them.
However, let’s pretend I did sign it before hearing about your idea. What happens if I have listened to this idea before or am working on something similar and signing an NDA for them? Now, I violate two NDAs and have a conflict of interest, which creates a significant liability for my business.
Retaining legal counsel to review and track all the NDAs would take a lot of time and money, and I’m not willing to do it.
You should be able to discuss your idea with potential users, me, or potential investors without an NDA. In most cases, you will not have something patentable or any trade secrets as you have yet to have a product—you can protect these, not ideas.
2. I have a Fiduciary Responsibility to my business
Yes, you read that right. NDAs will put me in a non-win legal situation by forcing me to violate my fiduciary responsibility to my business.
I have worked with many clients and will have more in the future. Having an NDA will put me in the situation of having a non-performance or honest-services prosecution.
I have a reputation to protect and won’t injure my clients by flapping my lips. If I did, I would lose the trust of my current and potential clients. Effectively killing my business.
3. They are typically overreaching and too broad
I have seen generic NDAs on the web and some NDAs written for large corporations by professional legal counsel. The one thing they have in common is that the language is too broad and overreaching.
Having just a few NDAs like this will put me and my business in legal jeopardy. I am responsible to all my clients, past, present, and future. I cannot risk a non-win situation that could force me into a non-performance or hinder me from providing my services to the fullest and honestly.
4. Shows a lack of trust
Confidentiality is implied; any agreement we sign will have a confidentiality clause. In addition, if you tell me something is confidential before having a discussion or the documents you send me are marked “confidential,” I am legally bound to keep that information confidential—unless that information is already publicly accessible.
My reputation would sink if I went around blabbing client’s secrets.
Your NDA will show me how much respect you have for me and what kind of business person you are. Any language in the NDA that tries to take ownership of all my work, not just what I do for you, includes a non-disparagement clause, or you are trying to prevent me from reporting illegal behavior will show your true colors.
Respect and trust are mutual.
5. They are generally unenforceable
Having had lawyers review NDAs, I have learned that they are usually unenforceable. This is because most NDAs are poorly written and overly broad. Courts rule them unenforceable in most cases.
After sending them an NDA a client wanted me to sign, I had a lawyer tell me that the client violated local laws that would invalidate the NDA instantly after the judge read it and could have the DA charge the client afterward.
In most cases, the Confidentiality clause in our agreement will suffice. However, an NDA makes sense in rare situations, and I will sign it. Here are my criteria for signing an NDA:
- I’m getting paid, or an agreement is in the works.
- It has a narrow scope for patents, potential patents, or patents pending.
- It has a narrow scope for sensitive personal information.
- It does not prevent me from reporting a crime or illegal behavior.
- It has a narrow scope to protect art or entertainment (movies, books, games, etc.) and would expire when it is released to the public.
- I have a reasonable expiration date.
Final thoughts
In my experience, there are two types of clients: 1) those who have industry experience and 2) those who do not.
Understandably, those without industry experience desire to protect what they believe is there and mistakenly think that an NDA will protect their idea. In most cases, clients understand why I will not sign their NDA when I explain that I need to protect my business and that the execution of the idea matters, not just the coding. Usually, mentioning the confidentiality clause and my reputation is enough to put their minds at ease.
For those with industry experience, on rare occasions, they don’t have me sign an NDA. Again, they know that the confidentiality clause protects them.
Not every client accepts me not signing an NDA. I have lost clients, big and small, due to my refusal to sign their NDA or the fact that we cannot agree on the terms.
I’m OK with this. I would rather lose one client than all of them or lose a lot of time and money to legal fees fighting the NDA.