Last Updated March 26, 2024
A Confidentiality Agreement is sometimes referred to as a:
- Confidential Disclosure Agreement (CDA)
- Confidentiality Contract
- Proprietary Information Agreement (PIA)
- Secrecy Agreement (SA)
What is a Confidentiality Agreement?
A Confidentiality Agreement is a contract in which one party agrees to reveal sensitive or proprietary information to another party. In exchange, the party that receives the information agrees not to share it with any unauthorised third parties.
The purpose of this agreement is often to facilitate business and affirm that the recipient of the information only uses the data as permitted. The party that discloses the information should detail the permitted uses in the contract.
For instance, if you’re considering entering into a business partnership, you can use a Confidentiality Agreement to safely discuss business operations, manufacturing processes, and other sensitive information before entering into a Partnership Agreement.
You can also use LawDepot’s Confidentiality Agreement if you're a buyer who’s assessing the viability of a purchase or sale transaction.
Inventors may also use this agreement when having someone evaluate the originality and patentability of a new invention.
How do you write a Confidentiality Agreement?
LawDepot’s Confidentiality Agreement template makes it easy to write a comprehensive contract that works for your business needs. The information you’ll need to provide is:
- The relationship between the parties
- Each party’s contact details
- The information that needs protection (e.g., intellectual property, customer information, or business operations)
- Time limits for non-competition or non-solicitation (if needed)
- A time limit for the duty of confidentiality
Can an employer require an employee to sign a Confidentiality Agreement?
Many employers ask their employees to sign Confidentiality Agreements to protect commercially sensitive information and prevent unfair competition. Employees often encounter this standard practice throughout their careers.
However, laws prevent employers from using these contracts to cover up criminal activity, such as sexual assault or racial discrimination. A Confidentiality Agreement cannot prevent someone from disclosing information to police, healthcare workers, or legal professionals.
In Ireland and the UK, employees also have the right to consult a lawyer before signing an agreement. It’s essential to understand the legal restrictions and limitations of a Confidentiality Agreement, and lawyers help put things into perspective with plain English.
If an employee refuses to sign a Confidentiality Agreement, it may be within the employer’s right to terminate the employee. Seek legal advice if you’re unsure about the legality of a Confidentiality Agreement.
Is a Confidentiality Agreement legally binding?
When executed properly, a Confidentiality Agreement creates a legally binding contract. A valid contract has several elements:
- One party presents an offer (something of value) that the other party accepts.
- Both parties benefit in some way, either from money, services, or another valuable asset.
- There is mutual agreement to enter the contract (without coercion, duress, or undue influence).
- The contract doesn’t pertain to anything illegal.
- The person signing the contract has the legal capacity to do so.
What happens when you break a Confidentiality Agreement?
If one party fails to meet obligations under a Confidentiality Agreement, the other party may take legal action against them. Depending on the situation, the disclosing party could file lawsuits such as:
- Copyright infringement: using the intellectual property without permission
- Misappropriation of trade secrets: wrongfully using or disclosing a trade secret
- Conversion: intentionally interfering with someone’s personal property
In some cases, liquidated damages are an adequate remedy for the breach of contract. You can include a penalty for a breach of contract clause in your Confidentiality Agreement, setting a predetermined sum of money for these situations.
In other cases, damages alone will not be sufficient to remedy the loss suffered. As such, LawDepot’s Confidentiality Agreement states that the parties agree the owner of the confidential information will be entitled to injunctive relief (a court order) to prevent any further misuse.
How long does a Confidentiality Agreement last?
The obligations created by a Confidentiality Agreement can continue indefinitely or end on a predetermined date. If you don’t specify a date, the information should remain confidential indefinitely.
When specifying an end date, consider when the relationship between the two parties will end or if there’ll be a time that the parties no longer need to keep the information private. For instance, if the confidential information becomes publicly known, it’s no longer confidential and the receiving party has no further obligation.
European Union Regulations generally protect trade secrets because they’re often valuable business assets. As such, the obligations of confidentiality for this category of information are indefinite.