In business, sometimes there is a need to keep things on the “down low,” especially when assets or money are at stake.

With a confidentiality agreement, you can ensure that important information doesn’t fall into the wrong hands.

This agreement, which is also known as a non-disclosure agreement (NDA), is effectively a written contract between an employee and their employer. As such, it is legally binding and remains in effect for the entire duration of the employee’s tenure, as well as some time after their employment has been terminated.

In this article, we’ll tell you everything you need to know about this contract. You might find it something worth introducing to your organization.

When Should You Use a Confidentiality Agreement?

There are quite a few scenarios where you may deem it appropriate.

Generally speaking, if you have a valuable business idea and harbor concerns that another party may try to steal it or profit from the information without you, then you should get a confidentiality agreement in place.

Here are some examples where an NDA may be applicable:

• When you are presenting your invention or business proposal to potential partners, investors, or distributors
• If you are going to sell your business and you are sharing key information on financials or marketing with a potential buyer
• Demonstrating new technology or products to prospective buyers or a licensee
• If you receive any services from people and they have access to sensitive data or information while they provide the services (e.g. web designers, accountants)
• When your employees have access to proprietary information or confidential data about your business during their jobs

There are two key types of confidentiality agreement – one is mutual, whereas the other is a one-sided accord.

In the latter, only one party will share confidential information, and so the other party must sign the agreement not to disclose any information.

A mutual NDA is used in situations where both sides share information that they want to be kept confidential.

The Key Elements of a Confidentiality Agreement

There is no requirement for an NDA to be overly long and complex. Usually, the best types of confidentiality agreement are no more than two or three pages long.

So long as you have the following key elements, your NDA can be short and sweet, without losing any legal muscle.

1. The Parties to the Confidentiality Agreement

This is covered in the beginning of any NDA contract. It is a simple description that outlines all parties concerned.

In one-sided agreements, the party that is giving information is often referred to as the disclosing party, and the party receiving information may be called the recipient.

If the recipient intends to share the information with affiliated partners, companies or agents, then the NDA must also include these parties.

2. Define What Is Deemed to Be Confidential

In this section, you must clearly define what you actually mean by the term “confidential information.”

Does it cover everything that is discussed and shared? Or will the most sensitive information be clearly marked as “confidential?” What about oral information?

The disclosing party should ensure their definition is broad enough to counter any attempts by the other side to exploit potential loopholes.

The recipient should also ensure they fully understand what information they should not divulge, just so there are no mistakes on their part.

Oral information is a little tricky. Sometimes it is deemed as confidential, but the disclosing party must also follow up in writing to notify the recipient about which oral statements are actually confidential.

3. Scope of Confidentiality Obligation

In any good NDA, there will be a two-part obligation, which is the duty of the recipient:

• One is an agreement to keep the information confidential
• The second is that they don’t use the information themselves

Essentially, the first section agrees to keep the information secret, which involves taking reasonable steps, so others don’t get access to the confidential information.

An example would be restricting company access to just a few people in the recipient’s company, all of whom have been informed of the confidential nature of the information.

The second part of this section is no less crucial, as a recipient could easily profit from a great idea once you share the information.

With a wide scope in your confidentiality agreement, you should be able to stop recipients from breaching the contract, or sue them if they do.

4. Exclusions from any Confidentiality Treatment

In every NDA, there will be certain items that are excluded from the recipient’s obligations. These exclusions address particular situations where the parties agree it would be unfair to expect the other party to stay loyal to the contract.

Common exclusions typically include:

• Information that is already known by the recipient
• Information that is already public knowledge
• Information that the recipient developed independently, without referring to the disclosing party’s confidential information
• Information that is shared with the recipient by another party that has no duties to the confidentiality agreement
• Information that the recipient is forced into disclosing during a legal process. A court order effectively outranks the NDA, and therefore the recipient would not be in breach of the confidentiality agreement if they warn the disclosing party prior to legal proceedings.

5. Term of the Confidentiality Agreement

There are some legal professionals who will argue the case for eternal contracts where confidentiality is concerned. After all, why should there be a limit on secrecy?

However, from the recipient’s standpoint, you may want a definite term that outlines when the agreement comes to an end.

In most cases, information will become defunct sooner rather than later, so having an extremely lengthy or infinite contract doesn’t make sense.

So, what is a reasonable length for a confidentiality agreement?

The standard term for these agreements runs from two years to five years. This can vary depending on the industry and the information that is being shared.

Typically, a few years is normal and widely accepted in the current climate. With technology advancing so rapidly, information deemed valuable today can soon become worthless.

An important footnote to include is this:

Even if the term of the contract has elapsed, the disclosing party will not be giving up their rights to other related items of the contract or information. That includes their copyright ownership, patents, or any other proprietary rights to intellectual property.

The confidentiality agreement should include language to this effect, ensuring there is no room for interpretation or exploitation by the recipient when the term has ended.

Some Other Key Considerations for an NDA

While the typical confidentiality agreement will only run a few pages long, there are plenty of options that you can add to solidify the protection for your company. This is especially pertinent if you are the disclosing party.

Here are a few ideas:

Employee Solicitation

In the contract, the recipient may have access to your workforce. In such cases, it is a good idea to insert a specific clause that prevents recipients from any solicitation, ensuring they can’t hire any of your employees for the next 12 or 24 months.

While this may be a formality for some people, some recipients may try to modify the language so that the restriction only adheres to the employees of yours that they actually interview or work with.

Jurisdiction in the Event of Disputes

As the disclosing party, it’s wise to take precautions in case of any disputes about whether the recipient have honored their obligations. You can put it in the contract that such disputes will be exclusively handled in your own city.

This saves your company from additional costs, guaranteeing you don’t need to travel too far to enforce the NDA.

Injunction

If you have an injunction clause in the contract, you don’t need to wait to claim financial damages after the fact. Instead, you can get a court order that stops the other parties from breaching the agreement in the first place.

No Rights for the Recipient

It should be obvious, but all the same, it helps to include a clause that states the recipient is only receiving confidential information. Moreover, it should state they won’t actually have any rights to the ideas or information you share.

A Confidentiality Agreement Is Essential in Modern Business

We’re in the era of the start-up. Machine learning technology, blockchain, and mobile apps are the future, and whoever creates the next big thing is sure to have a very bright and prosperous future.

But they must take the right steps to keeping their business and information protected, so that competitors don’t exploit any legal loopholes.

With a solid confidentiality agreement, you can be confident in entering partnerships with people and companies who will take your business forward.

Keyword: confidentiality agreement