It’s your job as a business owner to ensure your business is protected in all forms. This includes intellectual property, proprietary information, trade secrets, and financial details. The best way to protect this information from becoming public is to create confidentiality agreements with partners, vendors, and employees. These agreements protect sensitive information about your business from being shared with others. Below, we discuss how to create a confidentiality agreement and what to include.
What Information Does a Confidentiality Agreement Protect?
You’ll want to ensure your confidentiality agreement covers any information you don’t want shared with the general public. The types of information business owners generally enclose in confidentiality agreements include:
- Product details and plans
- Development and research
- Launch and release dates
- Marketing plans
- Proprietary software
- Trade secrets
- Customer contact and financial information
- Internal financial records not subject to federal or state reporting
What to Include in a Confidentiality Agreement
For a confidentiality agreement to be valid, it must be reasonable, limited in scope, and only valid for a specific duration. Confidentiality agreements must also be in writing. Here’s what you should include in a confidentiality agreement:
Defining Confidential Information
Every agreement should specify how the company will notify employees that they are viewing sensitive information. This could be anything from a statement at the end of an email signature, a stamp placed on a classified document, or a physical location where confidential information is stored.
Information Access
You’ll want to describe the different levels of access employees of various statuses should have to confidential information. You’ll also want to disclose whether sensitive information can be shared between employees—especially if they hold a different status in the company.
Confidential Information Purposes
You should include proper uses for sensitive information and how employees should handle viewing and sharing this information within the company. For example, you may want to specify that sensitive information should never be emailed on a personal computer. Or you can prohibit confidential documents from leaving the office.
Exemptions
The more specific you are when creating a confidentiality agreement, the better. Define any exemptions to the agreement and when they could be applicable.
Duration
How long the agreement will remain in effect is one of the primary aspects that should be included in a confidentiality agreement. Many confidentiality agreements state that the terms of the contract will remain in place until the information is announced publicly.
Types of Confidentiality Agreements
Confidentiality agreements can be separate documents or included as a clause in other types of business contracts. Here are the most common types of confidentiality agreements:
Nondisclosure Agreements
Nondisclosure agreements (NDAs) are the most common type of confidentiality agreement businesses use. They’re usually drafted as separate contracts given to employees, vendors, and contractors regarding specific types of information. NDAs can also be given to prospective employees, especially in the C-suite, who can access company data during the interview and negotiation process.
Unilateral Agreements
Unilateral or non-mutual agreements only bind one party from sharing private information. This type of confidentiality agreement is often used in employee contracts, where employees are prohibited from sharing proprietary information about the company to others.
Bilateral Agreements
Two parties are bound to the same terms with mutual (or bilateral) confidentiality agreements. This type of agreement is often used during mergers, new partnerships, or business sales.
Reciprocal
In a reciprocal confidentiality agreement, both parties must hold different types of information private. For instance, a reciprocal agreement could state that an employee must keep company financial information private. In return, the company commits to keeping the employee’s contact information private.
What Voids a Confidentiality Agreement?
Confidentiality agreements must have a defined duration, limited focus, and detailed scope. A confidentiality agreement may be void and unenforceable in court if the agreement is vague, has an erroneous or unattainable timeframe, or fails to include federal requirements, such as the Defend Trade Secrets Act (DTSA) Notice.
What Happens if You Breach a Confidentiality Agreement?
The company may sue you if you’ve willfully shared information protected in your confidentiality agreement. If you’re a current employee, you could lose your job. You may be responsible for paying a fine and damages caused by the breach if it halted production or required extensive changes to how the company markets its products.
Business Contract Creation with Peppler Law
Confidentiality agreements are one of the many types of contracts you should create as a business owner. It’s important to have an experienced business lawyer like Thomas R. Peppler help you draft detailed contracts that will hold up in court and protect your business. Schedule a consultation with us today to see how we can help develop a solid foundation for your business.
