Business owners often find it necessary or desirable to keep valuable and sensitive information private. In some instances, a business may have developed certain key elements that help distinguish it from its competitors. In other instances, a business owner may handle sensitive information that a client would not want exposed or that is protected by law. If your business develops products using proprietary information or handles sensitive information, it is imperative that you use a confidentiality agreement to prevent employees and contractors from disclosing it.
What is a confidentiality agreement?
A confidentiality agreement, also known as a nondisclosure agreement, is a contract that requires that a party agree not to disclose certain information made available to the party. In most instances, the information that a business wants to keep confidential is either sensitive information, personal information, or information that affords the business a competitive edge. The latter type of information is often categorized as a trade secret. Trade secrets are proprietary processes, systems, technology, vendors, and other types of information that enable a business to maintain a competitive advantage. Confidentiality agreements are often used by employers when hiring employees and independent contractors to maintain the confidential nature of the information available to the employees and contractors.
When should you introduce a confidentiality agreement?
It is usually best to enter into a confidentiality agreement at the inception of the work that will involve the exchange of sensitive or proprietary information. Failure to execute a confidentiality agreement on the front end may later result in resentment and hostility—or even expensive litigation. If a party is resistant to being bound by a confidentiality agreement, this may indicate that the working relationship could encounter challenges. In other words, a confidentiality agreement can serve as a way to measure and secure trust between the parties to an agreement.
It is also important to note that even when a confidentiality agreement is introduced at the beginning of a working relationship, it can include terms that remain enforceable beyond the conclusion of the working relationship. For example, a confidentiality agreement entered into between a business owner and an independent contractor can remain in effect after the work contract has ended.
What should your confidentiality agreement include?
Confidentiality agreements should be clear and detailed. Confidential information should be explicitly identified and described in the agreement, as should the names of the parties that are bound by the agreement.
However, employers and business owners should exercise care in how they define confidential information within the agreement. Categories of information that are too broad or vague in the agreement may be considered unenforceable during a lawsuit if a dispute arises. Similarly, a nondisclosure agreement may protect confidential information only for a reasonable period of time, and this period varies for different types of confidential information. Failing to take the proper steps to protect your confidential information, such as entering into a confidentiality agreement, could result in defeat if you ever must prove that someone has violated your expectation that certain information not be disclosed.
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