NDA Red Flags: What to Check Before Signing a Non-Disclosure Agreement

Non-disclosure agreements are everywhere. You might be asked to sign one before a job interview, a freelance project, a business partnership discussion, or even a first meeting with a potential investor. Most people sign them without reading carefully, assuming they are standard. But NDAs vary widely, and a poorly written or intentionally aggressive NDA can restrict your career, expose you to lawsuits, or silence you in ways you never intended.

What an NDA Actually Does

An NDA is a legally binding contract that prevents you from sharing certain information with others. In concept, this is reasonable. Companies have legitimate trade secrets and business strategies they need to protect. The problems arise when the agreement is drafted too broadly, lasts too long, or creates obligations that are unrealistic.

1. Overly Broad Definition of Confidential Information

The most important section of any NDA is the definition of what counts as "confidential information." A well-drafted NDA will specifically describe the types of information covered. A problematic NDA uses language like "any and all information disclosed by the company, whether written, oral, or observed" without meaningful limitations.

This kind of language could mean that even publicly available information or things you already knew become subject to the agreement. Look for clear boundaries and specific categories of protected information.

2. No Expiration Date

Some NDAs have no end date, meaning your obligation to keep information confidential lasts forever. While this might be appropriate for genuine trade secrets like a proprietary formula, it is excessive for most business relationships. A typical NDA should have a term of two to five years. If the NDA you are signing has no expiration or says "in perpetuity," ask for a reasonable time limit.

3. One-Sided Obligations

Many NDAs are mutual, meaning both parties agree to protect each other's confidential information. But some NDAs are one-sided, placing all the obligations on you while the other party has no restrictions. If you will be sharing sensitive information too, such as your business plans, client lists, or creative work, push for a mutual NDA.

4. Vague or Excessive Penalties

Look for clauses that specify what happens if you breach the agreement. Some NDAs include liquidated damages clauses that set a fixed penalty amount, sometimes in the hundreds of thousands of dollars, regardless of the actual harm caused. Others include language that allows the disclosing party to seek "injunctive relief" plus all legal fees and consequential damages. Understand what you are agreeing to pay if something goes wrong.

5. Non-Compete Language Hidden in the NDA

Some NDAs include clauses that effectively function as non-compete agreements. For example, a clause that says you cannot "use confidential information to compete" sounds reasonable, but if the definition of confidential information is broad enough, this could prevent you from working in your field. Check whether the NDA restricts your ability to work for competitors or start a competing business. If it does, you may be signing a non-compete without realizing it. Our guide on non-compete agreements covers this in more detail.

6. No Exceptions for Required Disclosures

A well-drafted NDA should include exceptions that allow you to disclose information when required by law, court order, or government investigation. Without these exceptions, you could be in breach of the NDA simply for complying with a subpoena or cooperating with a regulatory inquiry. This is a significant red flag that suggests the drafter either lacks experience or is deliberately trying to create a chilling effect.

7. Restrictions on Discussing Working Conditions

In employment contexts, NDAs that prevent you from discussing wages, working conditions, or workplace safety may violate federal labor law. The National Labor Relations Act protects your right to discuss these topics with coworkers. Similarly, NDAs that prevent you from reporting harassment or discrimination may be unenforceable under whistleblower protection laws. If an employer asks you to sign an NDA that seems designed to keep workplace problems quiet, that is a serious warning sign.

What to Do Before Signing

Take the NDA home and read it carefully. Do not sign under pressure. Look for the key elements: what is confidential, how long the obligation lasts, what the penalties are, and whether it is mutual. If anything seems unreasonable, ask for changes. Most reasonable business partners will negotiate NDA terms.

You can also use Fine Print Fighters to scan your NDA and get a plain-English breakdown of the most important clauses and potential risks.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. For questions about your specific situation, consult a qualified attorney in your jurisdiction.