What Is a Confidentiality Agreement?
A confidentiality agreement is a legal agreement that binds one or more parties to non-disclosure of confidential or proprietary information. A confidentiality agreement is often used in situations wherein sensitive corporate information or proprietary knowledge is not to be made available to the general public or to competitors. A non-disclosure agreement (NDA) is a particular type of confidentiality agreement.
A non-disclosure agreement offers a means to protect valuable company information from being shared with the public or leaked to competitors. A non-disclosure agreement – also known as a confidentiality agreement –specifies that another party cannot share proprietary information without your consent. Some examples of proprietary information include company data, records, intellectual property, and software.
For small business owners, non-disclosure agreements are a good idea when you hire a new employee, bring in a business partner or consultant, or sign on with a new supplier or vendor.
The ABCs of Non-disclosure Agreements
Now that you know why confidentiality agreements are important, here’s what you need to know about drafting one.
A non-disclosure agreement should include the following information:
• The relevant parties – does the agreement apply to an individual and your company, or your company and another organization?
• The protected information – is the agreement all-inclusive or is there specific confidential information the signee is not permitted to share?
• The time frame – when does the agreement take effect and for what period of time? Some business owners choose to draft agreements for an indefinite period after employment is terminated.
• The geographical scope – does the agreement apply locally, nationally, internationally?
• The injunction clause – this is a must so your company can take legal action should there be cause to believe a signee may disclose protected proprietary information, or has done so.
• The consequences – what are the terms if an individual violates the confidentiality agreement (e.g. who pays for legal expenses, the penalties for breaking the agreement).
You can get a sense of what a non-disclosure agreement looks like by searching for free templates online. However, it is highly recommended that you consult with an attorney before signing a confidentiality agreement with another party. A poorly written legal contract may be difficult, as well as costly, to enforce.
If your company’s proprietary information is valuable enough to protect in writing, it’s worth the expense of doing it right. Consider having a well-written, legally-binding non-disclosure agreement in a place a cost-saving strategy for your business.
A few tips for writting a NDA:
• Be as specific and detailed as possible about the sensitive information you want to protect in a non-disclosure agreement. The description of the protected information – who owns it, what can and cannot be shared, and for how long – will be essential if you find yourself taking an employee, business partner, or organization to court.
• Take measures to keep sensitive data safe from unwanted eyes. Lock up files, use secure passwords, keep work files off personal devices, avoid sharing confidential information by email, and reinforce best practices for appropriately sharing sensitive data among staff, including temporary outsourced workers.
• Be extremely judicious about sharing company secrets. Once confidential information is out, you may be able to seek legal compensation but you can’t make the information that was shared secret again.
It’s impossible to put a price tag on what may have been lost when a non-disclosure agreement has been breached. The best policy for entrepreneurs with a trade secret? As best you can, for as long as you can, keep your secrets to yourself.
A confidentiality agreement may be contrasted with a waiver of confidentiality, whereby parties involved give up guarantees of confidentiality.
Violating a confidentiality agreement can subject that party to potential fines or other legal and reputational repercussions.
How a Confidentiality Agreement Works
A confidentiality agreement is a standard written agreement that is used to protect the owner of an invention or idea for a new business. It is also an important document between two companies that are contemplating a merger or a commercial transaction that must be withheld from public knowledge.
In the workplace, any individual who has access to sensitive information (an employee or a contractor for a firm) is often required to sign a confidentiality agreement to guard against the disclosure of competitive information that may harm the firm. The agreement is unilateral (one party signs), bilateral (both sign), or multilateral if many parties will have access to sensitive information.
A confidentiality agreement is a legal contract or clause that is used to protect the owner proprietary or sensitive information from disclosure by others.
Confidentiality agreements such as non-disclosure agreements (NDAs) are used to keep valuable ideas pertaining to new businesses, inventions, intellectual property, or proprietary processes from reaching the public or competitors.
Confidentiality is also required when dealing with deals such as mergers and acquisitions, which could lead to insider trading or market manipulation if revealed before it is made public.
Main Elements of a Confidentiality Agreement
Confidentiality agreements can be customized depending on the particulars of the situation, but certain boilerplate sections will often apply. The agreement will name the party or parties involved, the items subject to non-disclosure, the duration of the agreement and the obligations of the recipient(s) of confidential information.
The document will clarify that exclusions to the agreement include information that is:
Already known by the person or persons who are signing the agreement
Already in the public realm
Easily learned or could be learned independently outside the company that drafted the agreement
The agreement will also define instances of permissible disclosure (e.g., to law enforcement) and disclosure exceptions.
The “exclusions from confidential information” section excludes certain categories of information as non confidential, which protects the receiving party of this information from having to protect it in the future. The “obligation of the receiving party” section details what certain parties can do with the information provided by the disclosing party.
The “time periods involved” and “miscellaneous” sections use straightforward language to cover the term of the agreement and any other matters deemed important. Those matters may include details such as which state’s law to apply to the agreement and which party pays attorney fees in the case of a dispute.