Simply put, confidentiality agreements operate similar to a contract. Both parties involved in the agreement must consent to the terms, and a breach of a confidentiality agreement can result in legal penalties. Confidentiality agreements are generally limited to refer only to specific points of information that are sensitive, or especially important. The signing party is agreeing to refrain from disclosing any information about the other party.
A confidentiality agreement provides protection for certain information that is secret, or that is not intended to be shared with the general public. These agreements are often used in an employment law setting. An example of this would be how an employer may require a new employee to sign a confidentiality agreement stating that the employee will keep company information confidential.
Confidentiality agreements may also be called non-disclosure agreements or secrecy agreements. Businesses use confidentiality agreements for a variety of reasons, including:
- To protect sensitive, technical, or commercial information from disclosure;
- To prevent the forfeiture of valuable patent rights;
- To define exactly what information can and cannot be disclosed;
- To protect trade secrets;
- To protect financial information or inside information not available to the public; and
- To prevent former employees from giving out private company information once their employment has been terminated.
Some examples of what a legal confidentiality clause protects include:
- Machinery used;
- Technological developments;
- Secret processes;
- Future plans;
- Materials or ingredients used;
- Prices that are not public knowledge;
- Data and formulas;
- Employee work product; and
- Other items as specified in the agreement.
What Is the Duration of Confidentiality Agreements?
The duration of a confidentiality agreement will vary based on the needs of the agreement author. Generally speaking, confidentiality agreements will specify the period for which the agreement will cover. Additionally, the agreement is enforceable only if the information remains confidential. However, some confidentiality agreements may also request that a party keep information confidential permanently.
If a business is requesting that its employees keep information confidential post employment, this information should be so essential to the business that it is considered to be a trade secret before asking for a permanent confidential agreement. The scope, or extent, of the protection, must be tailored to the information being protected. Courts are hesitant to enforce agreements asking for excessive levels of protection for information which does not need that level of confidentiality.
What Are the Legal Exceptions of Confidentiality Agreements? How Are Confidentiality Agreements Enforced?
Although confidentiality agreements are an effective method of maintaining trade secrets, they are not foolproof. Essentially, there are four legal exceptions of confidentiality agreements:
- If the information is already in the public domain, then it cannot be protected as confidential information;
- Confidentiality agreements can be legally violated if revealing the protected information would aid in an investigation or case;
- Confidentiality agreements are only between the parties which signed the agreement, and consented to the terms included in the agreement. If a third party outside the agreement reveals the protected information to the public, then the information is no longer considered secret; and
- If the information were independently developed, or discovered by a party to the agreement, then the agreement would not be violated.
Because confidentiality agreements are a type of contract, the consequences of breaching a confidentiality agreement will often depend on the agreement itself. This is because a well written contract will state the punishment for breaking said contract. So long as the punishment stated is not excessive in comparison to standards created by the law, the punishment will be enforced. If no such clause exists, a court may decide the appropriate course of action. Since breach of a contract is a civil matter, monetary compensation for the injured party will be the most likely result.
Breaches of confidentiality agreements are generally treated in the same way as most other breach of contract claims. It is common that a breach of such agreements will lead to a damages award for any losses caused by the breach of confidentiality. It is important to note that in some cases, such a breach can actually cause a great deal of losses, especially if the business’ trade secrets are disclosed without authorization.
Additionally, courts have discretion in interpreting the scope of a confidentiality agreement. This is usually dependent upon the language used in the agreement. An example of this would be how a party may be able to avoid a negative judgment if one party to the agreement can prove that they had knowledge covered in the agreement prior to its signing, and they had obtained this information outside of the contract.
What Are the Penalties for a Breach of a Confidentiality Agreement?
As previously mentioned, the penalties for a breach of confidentiality agreement are similar to those for breaching any other sort of business contract. If a confidentiality agreement is signed and specific information is to remain confidential, violating this trust in the contract is considered to be a breach of contract. There are specific legal obligations that must be adhered to.
Some examples of breaching a confidentiality agreement could include:
- Using the confidential information to develop a similar business;
- Obtaining photocopies of confidential information and providing insider information to a competitor for financial or personal gain;
- Sharing confidential information with external parties;
- Exposing confidential information to a reporter, blogger, or journalist;
- Publishing the sensitive information on a blog, online media source, or social media; and
- Discussing confidential information with another person in social situations.
A potential breach or violation is a serious contract claim issue. If there has been a breach of a confidentiality agreement, there are several steps to consider. First, you will need to review the original document, as it may already detail the remedies for a breach of contract. Additionally, you will need to gather data and investigate how the information actually leaked. It is crucial that you get the correct information as this is important in developing a strong case, as well as ensuring that you have evidence to back up your claims.
When collecting the information, consider how the sensitive information has been used as well as the economic value of the information. The court will find such information useful when determining the monetary damages for the claim.
In almost all cases involving a breach of confidentiality agreement, you will be awarded damages stemming from a breach of contract. Other examples might include:
- Mishandling of trade secrets;
- Copyright infringement;
- Breach of fiduciary duty;
- Trespass; and
- Patent infringement.
Do I Need a Lawyer for Help with a Confidentiality Agreement?
There are many benefits to working with a confidentiality agreement attorney. You will need to understand and strategize about what specific legal claim needs to be made for a breach of confidentiality, which often requires the guidance of an experienced attorney in the field.
Additionally, although confidentiality agreements legally guarantee that confidential information stays protected in a variety of situations, it is important to understand how these legal agreements work for you to fully benefit from them.
It is important that you are aware of all of the laws regarding confidentiality agreements before signing or creating the document. If you are well-informed, you can make the best legal decision for your present and future contracts. A skilled and knowledgeable contract lawyers can assist with all of the aforementioned topics. An experienced and local business attorney can also ensure that the agreement you are signing is legal and fair, and help you understand your rights and options. Finally, the attorney will be able to represent you in court, should a legal issue arise.