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What is a Confidentiality Agreement?
A Confidentiality Agreement, also known as a privacy agreement, is a legally binding contract that individuals or businesses use to protect sensitive information. The purpose of this contract is to:
- Clearly describe what information is confidential
- Outline the permitted uses for the information
- Document the receiving party’s promise to abide by the agreement
- Acknowledge the options for enforcing the agreement
There are two parties to a Confidentiality Agreement:
- The disclosing party that reveals the confidential information
- The receiving party that agrees to keep the information confidential
Each of these parties may comprise of one or more individuals or entities. For example, if a partnership is hiring a consultant, the signatures of all the partners may be required. When filling out LawDepot’s Confidentiality Agreement form, be sure to include the names of all the people involved in the transaction.
Our online form is simple to fill out and readily available to download or print. You can view a sample draft of a Confidentiality Agreement above.
Confidential information refers to any facts, details, or data that are not common knowledge or part of the public domain. The information typically has commercial value and is reasonably protected.
For instance, a Confidentiality Agreement can protect the disclosure of various types of information, including:
- Customer information: customer or client data such as names, contact details, internet browsing history, GPS tracking, and more
- Intellectual property: any intangible asset that has commercial value, such as copyrights, patents, trademarks, and trade secrets
- Marketing, product, and service information: proprietary information such as strategic functions, marketing plans, production processes, and more
- Business operations and accounting information: intangible business assets such as data on vendors, staff, fixed costs, and other internal financial reports
Information is no longer confidential once it becomes known to the public at large.
States may limit the situations in which someone can rely on a Confidentiality Agreement. On the other hand, a judge might compel a witness to give testimony on the subject matter of a Confidentiality Agreement signed by that witness (but only if there is an overriding public interest).
When should I use a Confidentiality Agreement?
A Confidentiality Agreement is often used in the workplace or during business negotiations that involve the disclosure of commercially sensitive information, such as:
- 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 available to a prospective buyer during negotiations for the sale of the business
- When an inventor shows their invention to secure financial backing from a potential investor
How long should a Confidentiality Agreement last?
The obligations created by a Confidentiality Agreement can be ongoing or end on a specific date.
To specify an end date, consider when the relationship between the two parties ends or when the information no longer needs to be confidential because it’ll be in the public domain.
If a date isn’t specified, the information should remain confidential indefinitely. In other words, the duty of confidentiality will not expire.
It’s important to note, however, that trade secrets must always be kept as confidential information. These are considered valuable business assets essential to the competitiveness of the company and are generally protected by the Economic Espionage Act of 1996 and the Defend Trade Secrets Act of 2016.
What other restrictions can I include in a Confidentiality Agreement?
A Confidentiality Agreement can also include restrictive covenants, which are clauses in a contract that limit or prohibit certain behaviors that may risk the success of a business.
However, a word of caution: for your document to be enforceable, the time limits and the impact that these clauses have on the parties involved must be fair and reasonable.
Non-competition clause
Also known as an exclusivity clause, this provision aims to prevent an employee from using insider knowledge to compete for business with their employer. This term may be in effect while the employee works for the company or for a certain length of time after they leave.
Typically, a non-competition clause prohibits a person from:
- Giving advice, money, or skilled labor to a competing business or individual
- Directly competing for business as an owner, sole-proprietor, partner, or otherwise
Non-solicitation clause
This provision aims to prevent an employee from interfering in the employer’s relationship with other employees or contractors.
Any such interference could be damaging to the business. It would be an unfair advantage for the employee or former employee to use insider knowledge of the employment terms of other workers to lure them away.
A non-solicitation term may be in effect while the employee works for the company or for a certain length of time after they leave.
Typically, this clause prohibits the individual from:
- Convincing an employee or contractor to quit
- Discussing other employment opportunities with employees or contractors
- Hiring an employee or contractor to work for a competing business
What happens when someone breaches a Confidentiality Agreement?
If the receiving party violates the agreement and leaks confidential information, the disclosing party can take legal action against them. Your LawDepot Confidentiality Agreement will set out the legal remedies available in the event of a breach of contract. The first step is often to issue a Cease and Desist Letter to remind the receiving party of their 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. Ideally, the parties should aim to resolve the dispute through negotiation or mediation.