Clauses Your Confidentiality Agreement Needs
Table of Contents
You’ll need to protect your company’s secrets in plenty of situations, even from people you trust, including your employees. In this post, we’ll outline the specific clauses and details that virtually any employee confidentiality agreement worth signing and handing out should have.
1. Clear Definitions of Confidential Information
A confidentiality agreement or NDA only holds up if the other party knows specifically what they can and can’t divulge. Otherwise, they could breach the document without even realizing it.
You don’t have to restate every confidential detail in the document, but you should clearly define what you’re keeping secret. This could include:
- General company secrets
- Specific financial data
- Intellectual property
- Customer lists
- Upcoming product designs
- Any non-public information
It also helps to broadly describe what isn’t confidential. This isn’t always necessary, but it allows the signer to avoid stressing about what they can discuss.
You should also set a clear duration/end date in this section — for business information, this is commonly around 2-5 years.
2. The Purpose of the Disclosure
You’re giving out the information for a reason, which should be reflected in your document. You’ll set out the context for the confidential information and when the recipient may use it.
For example, if the sensitive information is the company’s financial data, an employee may need to discuss this with other team members. This clause clarifies that this is okay, but only in these circumstances.
A clause like this also simplifies potential disputes. You’ll be able to easily point towards this part of the document and explain that the other party hasn’t respected your disclosure.
3. An Outline of Obligations
It’s also worth including a broader explanation of the signer’s main obligations, not just who they can discuss the information with. This can include:
- A duty to actively prevent the information from going public
- A duty to notify the disclosing party of any potential breach
- A ban on creating derivative works that use the information
- Disclosing only what’s necessary if/when legally compelled
- Further clarity of who you may discuss this information with
- A duty to keep records of who else accesses these details
- Audit rights, especially for particularly high-stakes agreements
- More specifics on how the signer could use the information
An obligations clause effectively acts as the “terms and conditions” for these documents. These are essential for keeping your agreement free of any loopholes.
In addition, these obligations give you peace of mind. You’ll know that, if there is a breach, you’ll know about it immediately. You’ll also have the right to audit their compliance.
4. Returning/Destroying Confidential Materials
This clause binds the signer to destroy or return documents relating to the confidential details at your request. Clarify that this extends to any copies they might make — or you can simply block them from making copies in the first place.
Alternatively, you can set a specific date for this to happen or simply say that it comes into effect at the end of the business relationship. For example, an employee leaving the organization must no longer have access to confidential data.
You might think this clause goes without saying, but make sure you include it.
5. Potential Exclusions
You won’t want your confidentiality agreement to be too strict — this could turn great hires away, or just make the document hard to enforce. There’ll always be circumstances where a person is allowed to divulge certain information, and you must clarify this for the signer’s sake.
Here are a few situations where disclosures are usually permitted:
- If the information has since become publicly available
- If the receiving party knew before an official disclosure
- If the receiving party learns the information independently
- If the information has no significant business value
- If there’s a court order or law compelling a disclosure
However, it’s vital that the signing party knows how to approach situations where they’re legally required to divulge confidential information. For example, they should only provide the minimum information necessary, and they should ideally let you know first.
6. Remedies for Breach
The document must also explain how you’ll approach a breach, accidental or otherwise. It’s not fair to assume any breach was with malicious intent, but you should still treat it seriously.
Your first port of call will usually be an injunctive order, where a court formally forbids the signer from breaching the contract again.
If this doesn’t work (or the breach is severe), you can seek monetary damages for lost sales and reputational harm. Calculating this isn’t always easy, so consider adding a pre-agreed amount to the contract.
You’ll also have the right to terminate the offending employee.
Final Thoughts
A confidentiality agreement only stands up in court if you add the right clauses. Be sure to use a custom online template; these let you add any extra specifics to protect your firm’s confidential information.