NDA red flags to check before you sign

1. “Everything is confidential”

A fair definition covers non-public information shared for a stated purpose and then excludes four things: information that is or becomes public without your fault, information you already had, information you receive lawfully from someone else, and anything you develop independently. If the exclusions are missing, or the definition covers “all information of any kind” including what you learn by other means, you could be in breach for using knowledge you already had. Ask for the standard exclusions and for the definition to be tied to the purpose.

2. No end date

Perpetual confidentiality makes sense for genuine trade secrets, which stay valuable only while secret. For pricing, plans and everyday business information it is out of proportion, and it leaves you tracking old documents forever. Ask for a fixed period, commonly two to five years, with a separate longer rule for trade secrets if the other side needs one.

3. A non-compete in disguise

Wording such as “the recipient shall not engage in any business competing with the discloser” or “shall not develop similar products” turns a confidentiality agreement into a restraint on your work. How enforceable that is depends heavily on where you are. California, for example, voids contracts that restrain anyone from a lawful profession, trade or business, with narrow exceptions. At federal level in the US, the FTC's 2024 rule banning most non-competes never took effect: a court blocked it in August 2024, the FTC moved to drop its appeal in September 2025, and in February 2026 it published a notice removing the rule. Do not rely on enforceability either way; ask for the clause to be removed, because it has nothing to do with keeping information secret.

4. Non-solicitation of staff or customers

A non-solicit stops you from hiring the other side's employees or approaching its customers. In a sale of a business that can be reasonable; in an NDA signed before a first meeting it is usually overreach. If it stays, limit it to people you actually worked with during the talks, to active solicitation rather than someone answering a public job advert, and to a short period such as twelve months.

5. Fixed penalties and one-way legal costs

Some NDAs set a fixed sum per breach. How that is treated depends on the governing law. US courts will not enforce a pre-agreed amount that works as a punishment rather than standing in for a loss that is hard to prove. German law, by contrast, accepts contractual penalties, but a court can cut one that is disproportionately high. Either way, the amount can end up being argued over in court. Watch also for clauses making you pay the other side's legal costs whatever the outcome. Ask for the penalty to go and for the remedies clause to be limited to damages actually caused and a court order to stop misuse.

6. Grabs on your ideas and feedback

An NDA is about information, not ownership. Be wary of clauses saying that anything you suggest, develop or discuss during the talks belongs to the other side, or that they may use your feedback freely while you may not use theirs. For freelancers and inventors this can hand over the very thing you were pitching. Ownership of work should be agreed in the contract for that work, with a price attached.

7. Clauses that try to silence you

An NDA should not stop you from reporting a crime or a breach of the law. Many legal systems say so directly. In the US, pre-dispute non-disclosure clauses cannot be enforced in sexual assault or sexual harassment disputes under the Speak Out Act, and SEC rules forbid using a confidentiality agreement to stop anyone from contacting the SEC about a possible securities violation. In California, a non-disparagement or other clause that limits what an employee may disclose about workplace conditions must state that it does not prevent discussing or disclosing unlawful acts in the workplace. In England and Wales, a clause is void so far as it stops a victim of crime from disclosing it to the police, a lawyer or support services, and ACAS guidance says an NDA cannot stop whistleblowing. A fair NDA says this in a sentence; if yours seems to say the opposite, ask for that carve-out.

When you should not sign, and whether you can refuse

You can always refuse to sign an NDA or ask for changes; the price may be that the talks do not go ahead. Pause before signing if the document restricts where you can work or who you can deal with, if it asks you to give up rights to your own ideas, if it contains a large fixed penalty, or if it is presented as non-negotiable while the other side will not explain why the unusual clauses are there. Those are the moments to get legal advice.

Most requests for change are small and accepted: add the standard exclusions, set an end date, delete the non-compete. Send them in one short email with the proposed wording, agree the final text, and sign only that version. None of this is legal advice on your particular agreement.

Sources

• California Business and Professions Code § 16600: contracts restraining a profession or trade
• US Federal Trade Commission: status of the Non-Compete Clause Rule
• Cornell LII: liquidated damages and penalty clauses
• German Civil Code (BGB), sections 339 and 343: contractual penalties and their reduction (English translation)
• 42 U.S.C. § 19403 (Speak Out Act): pre-dispute non-disclosure clauses
• 17 CFR § 240.21F-17: confidentiality agreements may not impede reports to the SEC
• California Government Code § 12964.5: disclosure of unlawful acts in the workplace
• Victims and Prisoners Act 2024, section 17: NDAs void for disclosures by victims of crime
• ACAS: non-disclosure agreements (NDAs)