Employer Secrets: What You Need to Know about Confidentiality Agreements

Updated: Apr 24, 2020

If your business shares information with its employees that you would like to keep out of the public domain, you should have each employee sign a nondisclosure agreement. A confidentiality agreement, also known as a nondisclosure agreement is one of the most effective and simplest ways to protect business your assets. Failure to take appropriate measures to protect against trade secret theft could result in significant loss of profitability and loss of your customer base, and it can happen quickly and easily. It only takes a minute to copy or remove countless files containing confidential and proprietary company information.

A common misperception is that putting a nondisclosure agreement into place is burdensome and expensive. The truth is that not putting one in place can have devastating impacts on a business when information that should be protected is shared.

If you answer yes to any of the below three questions, you should have your employees sign a nondisclosure agreement.

1. Is there anything about how I run my business that I would not want to be known by others?

When thinking about this, consider what gives you a competitive advantage over others. Examples of the types of information most business want to protect the most include – innovative ideas and processes, trade secrets, pending negotiations, business and marketing strategy, financial information, pricing, client and vendor data, inventions, etc.

2. Do my employees have access to the information I consider to be confidential?

If anyone other than you, or a close family member, has access to the confidential information, then you are at risk of the information becoming public.

3. Would it harm your business if the information you consider to be confidential becomes public?

Disclosure is not a matter of if, it is a matter of when. While it is possible that employees will wrongfully disclose confidential information even with a nondisclosure agreement in place, the chance of disclosure is lower, and your ability to quickly act to protect your business is higher.

Confidentiality agreements can be stand alone, but often include provisions that provide for additional layers of protection. The three most common and important provisions typically included are non-solicitation and non-competition clauses, as well as ownership and assignment of intellectual property rights clause. If you want to restrict employees from taking on similar positions or working for a competing business, a non-compete agreement prevents employees from working for or becoming competitors for a certain amount of time. A non-solicitation agreement prevents terminated employees from taking your business’s customers, employees, or other contacts, either for themselves or for another company. For example, a terminated employee cannot try to take your client list or attempt to take clients with them. Intellectual property clauses most frequently address the ownership of intellectual property created during employment and rights to such after employment terminates.

The bottom line is that a nondisclosure agreement is one of the most efficient and effective ways to protect confidential information of a business. It is a must for most businesses that have employees, and in many circumstances should be put in place prior to discussions with independent contractors, vendors and business prospects.

If you would like a consultation on whether a confidentiality agreement is appropriate for your business, please contact me at irina@psimerlaw.com