A confidentiality agreement or non-disclosure agreement (NDA) is a signed agreement between two parties and used when confidential information is disclosed. It aims to restrict the sharing or misuse of sensitive information outside the confines of the working relationship. A confidentiality contract can be a unilateral agreement, where the receiving party is obligated to maintain secrecy, or a mutual agreement, where both parties are obliged to protect secret information.
At Lawbase, we understand that if you’re a small business owner, private information is likely to be shared with employers, contractors, clients or individuals. Every business or working relationship is unique, and we do not recommend using generic agreement templates, as they potentially won’t be reasonable, all-encompassing and legally effective.
How to protect your sensitive information with confidentiality agreements
It’s inevitable that private information will be communicated throughout the duration of any working relationship, whether it’s between an employer and employee, or a combination of businesses and individuals. If this information is revealed to third parties, the integrity of the project or working relationship can be potentially compromised, and the impact can be commercially damaging. In this instance, it’s critical to have an updated, written and signed confidentiality agreement in place.
As a small business, you’re probably wondering if you really need a confidentiality agreement or non-disclosure agreement. At Lawbase, we understand the unique needs of businesses, and we believe it’s important to have a confidentiality agreement for your working relationships with employers, contractors and individuals. A confidentiality agreement – or non-disclosure agreement – will protect your business by clearly outlining the terms under which sensitive information will remain private and privileged. Confidential information includes, among other things, proprietary information, detailed plans, business activities, strategies and ideas, or future developments.
Non disclosure clauses should also be included in an employee contract, when an employer can legally safeguard any sensitive information, during the course of employment and in some instances, for a specified period after the employment ends. Confidentiality contracts and non-disclosure contracts can protect the employer if a resentful or angry employee leaves the business and shares sensitive information to a competitor to damage the employer’s commercial prospects. A non-compete agreement can also be prepared to prevent former employees from using any private company information, strategies or concepts for financial gain.
What’s included in a Confidentiality Agreement?
These agreements exist in a letter, form or deed and, to be legally binding, need to be signed by all parties at the time of employment or commencement of a project. The agreement will usually include a general description of all intelligence that needs to remain confidential, an outline of the reasons for the information to remain private, an obligation to maintain its secrecy, the obligations of the parties to the agreement and the time-frame in which the information is to remain confidential. The agreement can also incorporate clauses with descriptions of specific information that prevent the recipient from disclosing any intelligence to damage the reputation or commercial prospects of the disclosing party.
If confidential or sensitive information is shared outside the working relationship, the party in breach of the agreement can be subject to legal action. The confidentiality contract should clearly communicate the steps a company or individual will take if the terms of the agreement are violated. However, it’s important to note that not all information can be safeguarded by a NDA or confidentiality agreement, especially information that is readily accessible or in the public domain. Therefore, it’s important that all parties involved clearly understand the nature of the information that needs to remain confidential.
Some small businesses have made the mistake of attempting to keep sensitive information confidential with oral agreements. However, this is unlikely to be held up as sufficient evidence if information is knowingly shared and a court case arises. As such, if you’re an individual or business that wishes to protect your private information, you shouldn’t anticipate that a court will enforce a verbal agreement, as it’s extremely difficult to substantiate its existence. In fact, many individuals and businesses have lost significant amounts of money because sensitive information was exchanged to third parties, and not protected by confidentiality agreements or non-disclosure Agreements.
NDAs for the Sale of Business
A confidentiality agreement is also beneficial in the sale of a business, when the vendor permits a prospective buyer to investigate its operations, procedures, strategies and accounts, and can be used during a joint venture or partnership, or when an original concept is revealed to a potential collaborator (such as a financial backer, designer, programmer or technical assistant).