Confidentiality Agreement guide
Thu 28 December 2023
In today's competitive business world, protecting confidential information is crucial. Trade secrets, customer lists, marketing strategies, and other sensitive data can give a company a significant edge. This is where confidentiality agreements and non-disclosure agreements (NDAs) come in.
What is a confidentiality agreement?
A confidentiality agreement is a legally binding contract between two or more parties that outlines what information is considered confidential and restricts how it can be used or disclosed. NDAs are essentially a type of confidentiality agreement, focusing specifically on preventing the disclosure of confidential information to third parties.
What to include in an employee confidentiality agreement?
An employee confidentiality agreement typically outlines what information the employee considers confidential and the restrictions on its use and disclosure. Here are some specific categories you'll usually find:
- Trade secrets: Formulas, processes, inventions, designs, marketing plans, and customer lists can fall under this category.
- Customer information: Customer names, contact details, purchase history, and preferences are often considered confidential.
- Financial information: Internal financial reports, budgets, projections, and pricing strategies can be protected.
- Business strategies and plans: Future product launches, marketing campaigns, and competitive analysis might be confidential.
- Proprietary software and code: Source code, algorithms, and technical specifications can be classified as confidential.
- Employee information: Salary details, performance reviews, and disciplinary records can be protected from unauthorised disclosure.
Additional clauses to consider:
- Duration: Specify how long the confidentiality obligations last after employment ends (reasonable timeframe is key).
- Return of materials: Require employees to return any confidential materials upon termination.
- Non-solicitation: Restrict employees from soliciting your customers or employees after leaving.
- Whistleblower protection: Ensure the agreement doesn't prevent employees from reporting illegal or unethical activities.
Will it be enforceable?
Employee confidentiality agreements are generally enforceable under English law, but due to the unequal bargaining position of the parties, under English law, the courts can interfere. Enforceability depends on careful and proportionate drafting which has taken into account :
- Reasonableness: The restrictions on disclosure must be proportionate and necessary to protect legitimate business interests. Excessive restrictions on common activities like discussing salary with colleagues would likely be deemed unreasonable.
- Clarity: The agreement must clearly define what information is considered confidential and the permitted uses and limitations on disclosure. Ambiguous language can weaken enforceability.
- Public interest: Confidentiality obligations cannot override the public interest. Employees cannot be bound to conceal illegal activities or information relevant to whistleblowing or reporting serious wrongdoing.
- Duration: While indefinite obligations are generally discouraged, reasonable timeframes to protect sensitive information are acceptable. Excessive durations might be considered anti-competitive and unenforceable.
- Consideration: In some cases, English law requires "consideration" (benefits or compensation) for an agreement to be valid. Whether this applies to employee confidentiality agreements can depend on the specific circumstances.
Don’t over rely on your confidentiality agreements
Confidentiality agreements and NDAs can indeed create a false sense of security for several reasons:
- Overreliance on the agreement: Businesses or individuals may mistakenly believe that an NDA shields them from all potential disclosures or breaches, neglecting other security measures or due diligence.
- Limitations of legal protection: An NDA alone cannot prevent information leaks entirely. Factors like human error, malicious intent, or unforeseen circumstances can still lead to disclosures, regardless of the legal agreement.
- Focus on legal remedies rather than prevention: NDAs offer recourse after a breach, but they don't actively prevent it. This reactive approach can leave sensitive information vulnerable until a breach occurs.
Therefore, it's crucial to:
- Use NDA's strategically and in conjunction with other security measures.
- Understand the limitations of legal protection and be prepared for potential challenges.
- Focus on proactive preventive measures rather than solely relying on reactive legal remedies.