A confidentiality agreement is a legally binding contract in which a person or company agrees not to disclose certain information to others. Confidentiality agreements are useful in various situations, but they always share the common goal of protecting trade secrets or certain knowledge that one of the parties of the agreement wants to keep confidential. If you’re getting ready to sign a confidentiality agreement, it’s important to learn what they are, how they work and what they include.
Why Do People Use Confidentiality Agreements?
Confidentiality agreements, which are also often called non-disclosure agreements (NDAs), can be one-sided or mutual. A one-sided NDA, or unilateral NDA, is useful when one party wants to disclose certain information to another, but only if that second party agrees to keep it a secret. Mutual NDAs, sometimes called bilateral or multilateral NDAs, are a type of confidentiality agreement used when two parties each promise not to disclose certain information they share with each other.
These types of contracts come in handy in a variety of situations. Companies often use employer-employee NDAs to make sure employees don’t share or even sell proprietary or “trade secret” information they learn about the company while working there. This helps ensure that the company’s secrets to success don’t fall into competitors’ hands. Independent contractor agreements also commonly include these types of non-disclosure agreements for the same reasons.
Merger and acquisition (M&A) NDAs are also common. They’re used when two companies begin negotiating with each other, as they ensure any information that comes to light stays private before the companies merge. Confidentiality agreements can also protect business interests, patent rights, client contacts and other information that could jeopardize an individual or company’s success or value if it got into the wrong hands.
NDAs are considered civil contracts, and there can be a variety of unpleasant consequences for breaking one. Depending on the situation, violating such a contract may not technically be illegal, but it does give the other party the right to take legal action against you. Where confidentiality agreements are concerned, a breach of contract most commonly results in the injured party seeking financial restitution from the violator, who may also be required to pay the associated court costs.
What Sections Does a Confidentiality Agreement Usually Have?
When drafting a confidentiality agreement, it’s important to research any state-specific requirements that you may need to include. You should also attempt to be very specific, as you’ll likely have a harder time enforcing an overly broad confidentiality agreement. It’s always best to consult a lawyer or contract expert when drafting your agreement to ensure you haven’t missed any important information.
In general, however, every confidentiality agreement should specify:
- The parties involved in the agreement. To be legally binding, the contract must be signed by each party.
- The time frame for which the agreement is valid.
- The responsibilities that both parties agree to uphold.
- The types of information that are considered confidential and an explanation why.
- The consequences that’ll result if someone breaks the NDA.
You should also keep in mind that there are some exceptions to the kinds of information a confidentiality agreement can cover. You may even want to include an exclusions clause that explains situations in which the signers aren’t expected to abide by the contract.
For instance, an NDA can’t prevent the signer from revealing information they already knew before signing the agreement, information that’s already public or that’s easily obtainable, or information about illegal activities.
What to Know Before Signing a Confidentiality Agreement
It’s vital to thoroughly read any confidentiality agreement you may be asked to sign — and it never hurts to go over it with a lawyer to be sure you’re aware of the provisions. Many confidentiality agreements give the other party the right to take legal action against you under certain circumstances. So, you need to fully understand what that action entails and which terms you need to follow to avoid it. The courts consider it your responsibility to uphold any legal document you sign, so accidentally violating an NDA because you didn’t bother to read it is no excuse.
It’s also important to note that the law takes trade secrets seriously, whether you sign an NDA or not. Revealing trade secrets to a competitor is illegal in almost every state under the Uniform Trade Secrets Act (UTSA) and can have serious consequences, ranging from fines to jail time.
Some employers may also ask you to sign a non-compete clause or agreement, especially if they intend to hire you on a long-term (as opposed to freelance) basis. When an employee signs a non-compete agreement with a company, it restricts them from working for or starting a business that could be considered a competitor of the former employer for a certain period of time.
Some confidentiality agreements may also include a non-solicitation clause. This type of agreement prevents you from trying to take the company’s clients by contacting them for your own gain or giving their information to a competitor. The bottom line is that it’s important to understand what you’re agreeing to before you sign a confidentiality agreement or any other legal contract. It’s also a good idea to ask for a copy to retain for your records in case you have any questions down the line.
How to Draft a Confidentiality Agreement
One of the most obvious ways to draft a solid confidentiality agreement is to hire a lawyer to draw one up for you. In cases where a great deal of money could be on the line if your secrets were leaked, consulting a legal professional is highly recommended. This is also true if you want your agreement to be very specific, as states can have different laws concerning enforceability and what you can and can’t include in this type of contract.
In instances where things are a bit less formal, or if you simply want to get a better idea of what a standard confidentiality agreement looks like, there are helpful sources accessible online. Legal template sites can help you build your own agreement. They ask you a series of questions, including things like what state you plan to use the contract in and the nature of the information you’d like it to protect, to draft a workable contract for you.
When your document is ready, you can either print it or save it so both parties can provide signatures online. This can be a much less time-consuming and inexpensive way if you need an informal agreement. Just keep in mind it’s always advisable to contact a lawyer for confirmation that the document is sound.
