What is a Confidentiality Agreement?
A Confidentiality Agreement is a legally binding contract that individuals or businesses use to protect against the release or misuse of sensitive information. Also known as a privacy agreement, this contract defines the confidential information, its permitted uses, and the receiving party’s promise to abide by the agreement.
LawDepot’s online form is a simple way to fill out and download your Confidentiality Agreement in minutes.
Types of Confidentiality Agreements
There are two main types of Confidentiality Agreements:
- Unilateral (one-way) agreements: Used when only one party discloses confidential information to the other party. This type of agreement is commonly used when an employer wants an employee to take on a new role (e.g., a promotion) and needs access to confidential information they previously didn’t have.
- Bilateral (mutual or two-way) agreements: Used when two parties exchange confidential details with each other. Common kinds of situations for this kind of contract include joint ventures or business partnerships.
In some situations, more complex business arrangements may involve a multilateral agreement that binds three or more parties to protect each other’s private information.
Confidentiality Agreements versus NDAs
Confidentiality Agreements and Non-Disclosure Agreements (NDAs) are similar documents and are both binding contracts. They both help ensure a receiving party doesn’t share or misuse specific private information.
With LawDepot’s templates, you can use a Non-Disclosure Agreement if you prefer its name to keep your confidential information safe.
Key components of a Confidentiality Agreement
The key elements of a Confidentiality Agreement include:
- Full names or business names, and addresses of each party
- Defined confidential information
- Both parties’ obligations
- Legal remedies, such as what happens if a party breaches the contract
- Return of confidential details
- Termination requirements
- Governing law
Some contracts may also include restrictive covenants. These are clauses that limit or prohibit certain behaviors that may risk the success of a business and are also typically used in employment circumstances. Such clauses are:
- Non-competition clauses, also known as exclusivity clauses, prevent employees from using insider knowledge to compete with their employer. This includes starting a competing business, or at the executive level, using that insider knowledge while working for a competitor. (It should be noted that non-compete clauses are not generally enforceable against regular employees working for competitors.)
- Non-solicitation clauses prevent employees from disrupting the employer’s relationships with staff or contractors. This includes prohibiting the use of insider knowledge to persuade other workers to leave and join a competing business.
It’s important to note that for these clauses to be enforceable, the time limits and the impact that these clauses have on the parties involved must be fair and reasonable.
What does it mean to define confidential information?
Defining confidential information in an agreement involves determining the purpose for which information is disclosed to the receiving party. Any use outside of that purpose will be a misuse of those details.
Defining the information in this way is what makes it possible to identify when a breach has occurred.
Is a Confidentiality Agreement legally binding?
Yes, Confidentiality Agreements are legally binding contracts and enforceable when they’re executed correctly. To be valid, they must:
- Specify the confidential information
- Have defined obligations
- Have fair and valid consideration
- Be set for a reasonable period
- Comply with state contract law
LawDepot’s questionnaire only prompts you to include necessary information for a valid contract in your jurisdiction. Both parties can seek the advice of a lawyer to ensure that their agreement is valid and enforceable before signing.
What happens if I breach a Confidentiality Agreement?
If you are receiving private information through a Confidentiality Agreement and use that information for purposes other than those purposes specified in the agreement, the other party could take legal action. LawDepot’s template sets out legal remedies available in the event of a breach. The first step is often for the disclosing party to issue a Cease and Desist Letter as a reminder of contractual obligations.
The disclosing party may also seek injunctive relief (i.e., a court order that prohibits disclosure and mandates the return of any confidential data or documents). This may be the case when damages (i.e., monetary compensation) alone can’t make up for the breach. The party can obtain an interim injunction at short notice, ex parte, where only the side seeking the injunction is represented in court before a full hearing of the case.
However, legal actions are costly and time-consuming, so parties can agree to resolve the dispute through negotiation or mediation.
Benefits of using a Confidentiality Agreement
There are several benefits for all parties using a Confidentiality Agreement. Having a written agreement can:
- Protect sensitive information by outlining permitted uses for details being shared
- Help ensure compliance and build trust in business relationships by documenting a receiving party’s promise to abide by the agreement
- Acknowledge options for enforcing the agreement (e.g., remedies for a breach)
- Can be used as evidence in case someone misuses or shares information, and can help prevent disputes
- Can help comply with industry standards of sharing information (e.g., industries like finance)
When should I use a Confidentiality Agreement?
A Confidentiality Agreement is often used in the workplace or during business negotiations that involve disclosing commercially sensitive information.
Examples of when to use an agreement include:
- When an employee or contractor gains access to new information not covered in the original contracts with their employer or client
- When an employer gives a salary raise, bonus checks, or other compensation packages that they want to keep private
- When a company makes its financial accounts, customer lists, and other privileged business information available to a prospective buyer during the due diligence phase of negotiations for the sale of the business
- When a business shares details like a Business Plan and account details with a consultant or agency providing marketing, software, or other strategies
- When an inventor shows their invention to secure financial backing from a potential investor
How to create a Confidentiality Agreement with LawDepot’s template
Easily create your Confidentiality Agreement by first selecting the relationship of both parties, then complete the following details:
1. Name the parties
Add the location where the contract will be used to determine the governing laws for your agreement. You’ll be prompted to include the names and addresses of all the parties involved. Parties can consist of those who are entering the contract based on your relationship, and the permitted use of the confidential information, for example:
- Contractor and client
- Employer and employee
- Seller and buyer
- Inventor and evaluator
If a party is composed of more than one individual or entity, ensure that everyone responsible for signing and agreeing to the contract is included in your document.
2. Specify what information needs protection
Include all the information that is being disclosed to the other party or parties. You can choose to specify that all confidential information needs protection in your agreement, or you can outline specific details that will need protection.
3. Add the terms of the agreement
When adding the terms of your agreement, specify the duration of the obligations of confidentiality. Some types of confidential information, such as trade secrets, must always be kept confidential, while for other categories, you can specify a period after the business between the parties has concluded, during which confidentiality must be maintained.:
- Indefinitely
- Five years
- Other duration
Our template includes standard terms and conditions for a Confidentiality Agreement, but you can add additional clauses like a non-solicitation clause or non-compete clause if they apply to your unique situation.
4. Include the final details
To finalize your document, simply select a date for the contract to be signed, if you have one picked, and indicate whether any witnesses will be present during the signing.