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5 Essential Elements of a Confidentiality Agreement

Confidentiality AgreementGrowing up, did you ever enter into a verbal confidentiality agreement with a friend? Did you ever share a valuable secret based on the promise that the friend would never breathe a word? And when that person inevitably blabbed, did you wish there was some way you could have ensured their silence?

Now, as an adult in the business world, the verbal promise of confidentiality is more ineffective than ever.

Fortunately, now you have tools at your disposal which you can use to protect your company’s confidential information. Even when the information may seem insignificant or you completely trust the other party, confidentiality agreements are the single most important way to protect the aspects of your business which you don’t want to be shared with anyone outside your company such as trade secrets, client lists, and much more.  

Also known as non-disclosure agreements (NDAs), a confidentiality agreement is a contract that legally binds the signatory to never share the information which the agreement covers. However, in order to be enforceable and effective, your NDA must be properly structured and executed.[1]

Detailed five essential elements that every confidentiality agreement should include.  

1) What information is considered confidential?

The contract should explicitly and comprehensively declare what information is considered confidential. It is purposely meant to define the boundaries of the declaration and disclosure. As with most contracts, ambiguous and unclear information regarding the confidential information could cause the contract to be ineffective.[2]

2) Exceptions to confidentiality

Just as your NDA should include all the information that must remain confidential, it should also clarify what exceptions exist to the confidentiality.

3) Obligations/Requirements of signees

The terms of your NDA will need to be more extensive than a simple, “Don’t tell anyone about these things.” You will need to clearly define the obligations and expectations of all signees regarding the confidential information. For example, your agreement should not only include consequences for purposefully sharing the confidential information with others, but also negligently or accidentally sharing the confidential information. To avoid accidental sharing of confidential information, your agreement may provide a specific way the confidential information must be stored and returned to you.

4) Consequences of breaking the confidentiality agreement

Any strong NDA should define the consequences of a breach of the contract. Potential remedies for a breach of confidentiality could rescission of an employment contract or termination, and should include a liquidated damages provision to define the value of the disclosure, and provide that the winner of a lawsuit should receive attorney’s fees.

5) Length of the agreement

Be clear about when the NDA will terminate. Exactly how long do signees need to keep the information confidential? Will it expire once a particular project is completed? Or will it continue in perpetuity? Once again, avoid ambiguity when defining the amount of time the confidentiality agreement will last.

If you own a business, there will be numerous occasions for which you should utilize a confidentiality agreement. Your relationships with employees, contractors, and vendors alike should include a strong NDA to ensure that the sensitive information which these people will have access to cannot be shared to any damaging effect outside your company. By neglecting the use an NDA, or by using a weak NDA, you may be putting your company at risk for severe consequences. Contact Muir & Associates today for guidance on when your company should use confidentiality agreements and for assistance with drafting strong, enforceable NDAs.

 

My company is working on a confidential project. How can I make sure no one talks about it?

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