Confidentiality Agreements between a Business and an Employee

A confidentiality agreement (also known as a Non-Disclosure Agreement) is meant to protect a business from misappropriation of valuable proprietary information by employees.  Often it is a good idea to have one in place with your employees.

When drafting or reviewing such a confidentiality agreement, check the following points (and consult with your attorney):

1.    Use the proper form of Confidentiality Agreement

Make sure that the form of the confidentiality agreement that was used to draft your agreement is appropriate for the business-employee situation.  Confidentiality Agreements designed for a business to business transaction where both parties disclose confidential information won’t do.

2.    Define Confidential Information

There must be a definition of what constitutes confidential information.  Be specific, but also include a more general “catch-all” provision.  Do not make confidential information depended on whether it was expressly marked as such.  Exclude information that is public or already in the lawful possession of the employee.

3.    State the Confidentiality Obligations

No disclosure of confidential information, unless to authorized other employees or compelled by court order (but we will have right to defend against court order before disclosure);

No removing of confidential information from business’ premises;

No poking around in confidential information to learn more than we disclosed (i.e. reverse engineer any data, software and so forth);

No reproduction of confidential information from memory;

Use of confidential information only for job purposes;

Obligation to notify business immediately upon learning that confidential information was disclosed or used inappropriately;

Upon notice by business, return of any confidential information in employee’s possession.

4.    State your Remedies

Money damages are often not sufficient to make whole for a business’ loss caused by disclosure of its confidential information.  A business must also be able to stop an employee in his or her tracks when disclosure is imminent.  To make courts give those remedies, it is advisable to state that in the agreement. In legalese, these provisions might be called  “Equitable Relief” or “Injunctive Relief.”

5.    Make the employee pay for the consequences of his or her breaches of confidentiality

In legalese, these provisions might be called “Indemnity.”  Make sure the indemnification clause includes “including reasonable legal fees incurred by the businesss.”

6.    State the Term of the Agreement

Usually as long as the confidential information remains confidential.

7.    Remember the limits of a Confidentiality Agreement

Confidentiality Agreements only offer so much protection.  Don’t neglect very practical protective measures:

Limit access to “as needed”;

Clearly identify confidential information (if verbal, say so), but don’t make that a prerequisite for your definition of confidential information (see above);

Monitor dissemination of confidential information by any appropriate means;

Continuously remind employees of confidential nature, i.e. verbally, in work manuals and so forth);

Implement security measures.

Have I forgotten any important point?  Feel free to comment.

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.