A confidentiality agreement is an agreement entered into between two parties in which they agree to keep certain information private.  It may also be referred to as a Non-Disclosure Agreement or a Secrecy Agreement.

Confidentiality agreements can be made with anyone that you need to share your confidential information with, including other businesses, employees, temporary workers, or external persons hired to conduct research or business on your behalf.

The idea behind a confidentiality agreement is that you (the disclosing party) are protected by ensuring that the receiving party will not disclose any of your information, except under the agreed terms, and will not market your ideas or compete with you.  Although you may trust your colleagues and employees implicitly, you do need to have something in writing that can be used in a court of law should  a judge need to determine whether there has been a breach and at what level.

When should they be used?

A formal confidentiality agreement should be entered into if you intend to share business-sensitive information which your company considers to be a trade-secret.  The agreement should establish a time frame during which disclosures will be made and the period during which confidentiality of the information is to be maintained.

If you are unsure about what kind of information is considered confidential you should visualise the things that you would not like a rival business to discover.   If your company is the only one giving up information then the agreement will be very one-sided and will basically inform the receiving party of what they are prohibited from doing with your information.  If both parties are exchanging information you should ensure that the agreement is made mutual – that is, placing obligations and responsibilities on both parties with regard to each other’s information.

It is important to execute a confidentiality agreement if the parties intend on disclosing intellectual property details or any of the following types of information:

Financial information
Know-how (proprietary knowledge) of commercial value
Information about the manufacture of prototypes
Tools and Systems
Test results
Engineering drawings and product specifications
Any  other information exclusively developed by one party

Confidentiality agreements can also be used to dissuade employees from revealing company secrets both during and after their employment.  It is prudent to ensure that all employee contracts have a clause which forbids them from revealing any secrets that they learn about during the course of their employment.  You need to be careful that any undertakings given by the employee do not restrict his or her right to earn a living.

If you have a team of people working on a private project you may also wish to get them to sign separate confidentiality agreements preventing them from telling anyone else in the company – who is not a part of the team – what is going on.  For example, if your software team is developing a ground-breaking app the last thing you need is to walk into the staff canteen and hear a lively discussion taking place about its merits.

Bickering parties may sign confidentiality agreements where they are settling a public or private dispute and do not wish the media to discover the nature of the settlement.  This happens a lot with wealthy individuals and celebrities, but also happens when key employees are being dismissed from their positions and often comes with a “golden parachute”.

A confidentiality agreement should be executed for a visitor to your organization’s research facilities in which confidential information, processes, devices or inventions are being used or demonstrated.   If you need to engage a computer technician to sort out a glitch in your company server you may also have him sign a confidentiality agreement.  In fact, any form of collaborator in your company’s private affairs should be informed from the outset that such an agreement must be signed in advance.

Circumstances when you do not need a confidentiality agreement:

The information is already in the public domain.
The receiving party already knows about the information.
The receiving party was able to discover or develop the information independently, without use of the confidential information.
A third party (with no duty of confidentiality) has disclosed the information to the receiving party.
The information must be disclosed to comply with applicable laws, court orders, or a request for information from a statutory body eg. the tax office.

The rules relating to non-disclosure are unlikely to be effect in respect of whistle-blowers who have discovered illegal acts being perpetrated by you or other persons in the name of your company.

Breach of a Confidentiality Agreement

Both parties have strict responsibilities under a mutual agreement to keep certain information private.  If one party breaches the agreement there are a number of steps that can be taken by the blameless party, depending on the nature of the breach.  If it is a minor breach then it may be possible to rectify the matter informally.  If it is a serious breach the repercussions will depend on what was stated in the agreement.   A statement should be included to the effect that the receiving party understands and acknowledges that any disclosure of the confidential information may cause the disclosing party irreparable harm, the amount of which may need to be ascertained by a court.

Usually, the repercussion for disclosure of the content of a settlement agreement is the loss of all or a portion of any financial payment that was made to the disclosing party.

Will my Confidentiality Agreement hold up in court?

Confidentiality agreements can sometimes be difficult, although not impossible, to enforce in courts. In order to reduce the risk of using a generic confidentiality agreement it is best to use the skills, experience, and expertise of a lawyer.  At You Legal our lawyers have significant experience with all forms of confidentiality agreements and will be happy to assist you in preparing a document that will protect the interests of your company.

* This blog is for general guidance only.  Legal advice should be sought before taking action in relation to any specific issues.