Protecting Your Value: The Importance of the Employee NDA

20 March 2014 Privacy, Cybersecurity & Technology Law Perspectives Blog

Where is your company’s value?

If you are a young start-up company, it’s probably in ideas. Any new invention, new way of attracting business, new way of streamlining a process, or anything else “new” starts with an idea. If value is located in an idea, how do you ensure that it is protected? With a Nondisclosure, Confidentiality, and Assignment of Inventions Agreement, generally known as an NDA.

NDAs can vary in form based on the specific needs of the company, but the most basic NDAs generally require an employee (a) not to disclose the company’s confidential information to third parties and (b) to assign all “right, title, and interest” in the employee’s inventions to the company if they are developed in the scope of his or her employment. Without an NDA, an employee (not the company) owns his or her inventions. Some suggest that an NDA component can be built directly into an offer letter or employment agreement; others prefer a more fulsome, free-standing NDA.  In either case, legal counsel can easily review your forms to determine whether the company is sufficiently protected.

When it comes to asking an employee to assign his or her inventions to the company, he or she may feel nervous. What about your employee’s prior inventions? What if the employee works on side projects at home that are completely unrelated to the company? While you should always discuss specific concerns with company counsel, these issues are often handled by including a section in the NDA where employees can specifically carve out prior inventions or inventions not related to their employment with the company.

Given its importance, don’t view the NDA as just another document that a new employee may sign. Make sure every employee signs an NDA and make sure it is executed correctly. That means making sure (1) the employee has correctly filled in his or her name such that he or she is clearly a party to the agreement, (2) properly identifying any prior inventions he or she wants to carve out, and (3) that he or she actually signed the NDA. Believe it or not, typing your name in a stylish cursive font is typically not a valid signature…

After all, potential investors will be principally interested in seeing that you are protecting the company’s value as well. Amidst investments or acquisitions, you will often need to represent that the company has executed NDAs from all relevant employees. And it’s a lot easier to see these NDAs executed as each employee joins the team than to return to each employee in the heat of a deal to collect signatures.

Do yourself a favor: start with a strong NDA, be consistent in collecting copies from your employees, and eliminate one more concern to distract you from running your company.

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