Non-disclosure, or confidentiality agreements are contracts used by employers and inventors to protect trade secrets and confidential information, which partners, investors, employees, and contractors may have access to as part of their employment. Trade secrets and information an employer or inventor may wish to protect include customer lists, manufacturing processes, new inventions, marketing strategies, and formulas or recipes. A non-disclosure agreement is one of the best ways a party can protect his or her trade secrets if they know how to use the agreement effectively. To use a non-disclosure agreement to protect your confidential information, follow these steps.
1Determine precisely what information is confidential and to be included in your non-disclosure agreement. The Courts are much more likely to enforce a non-disclosure agreement when it is clear what information is confidential and covered by the agreement. Some things to consider when determining how you will define confidential information are:
- If the information you are including in the definition is truly a secret in need of protection. The legal definition of a trade secret is any valuable commercial information that provides a business with an advantage over competitors who do not have that information;
- If it is possible to mark the confidential information as such, in a way that clearly identifies it as confidential, so that you may define confidential information as 'any information marked as confidential' or if most of the information conveyed to the employee will be confidential so that you may define it as ‘all information not designated as non-confidential;
- If the information fits into a broad category which can be used as part of the definition of confidential information, such as client information, marketing strategies, recipes or formulas, or manufacturing processes;
- If you are describing the confidential information in a clear and concise manner. For example, instead of listing all the information you may have on a client, you may simply say ‘client information’ or if you are able to mark all confidential information as such, simply say, ‘any information marked as confidential.’
2Decide exactly what information is not confidential. Defining non-confidential information as well as confidential information provides a clear picture as to what information is covered by the agreement, and therefore makes it more likely that a Court will uphold it. Common exceptions to confidential information include:
- information that is publicly known or in the public domain at the time of disclosure to the employee or contractor;
- information already in the possession of the employee or contractor;
- information obtained from a third party who had the right to supply it; and
- information independently developed by the employee.
3Determine to whom the confidential information may be disclosed while the employee or contractor is still obligated under the agreement. For example, the contractor or employee may need to disclose the confidential information to his or her own employees, other employees of your company, or his or her consultants in order to perform the services for which you have hired him or her. A couple things to keep in mind when deciding to whom the confidential information may be disclosed are:
- Third parties to whom information is disclosed are under no obligation to keep the information confidential unless and until they have executed a nondisclosure agreement.
- The disclosure of confidential information should be limited to those who “need to know” in order to carry out the purpose of the nondisclosure agreement.
4Decide what the standard of confidentiality will be. The agreement should clearly state whether the employee or contractor should hold the information strictly confidential, take reasonable precautions to hold the information confidential, hold the information according to its established procedures for confidentiality, hold the information according to standards prevailing in the industry, or use best efforts to hold the information in confidence.
5Decide how long the information is to remain confidential. Generally, the term of a nondisclosure agreement is three to five years. However, information which will not become worthless after a certain amount of time may need to be protected indefinitely. The term of the agreement should be long enough to protect the information until it becomes stale or worthless, but should not be so long that it makes compliance by the employee or contractor difficult.
6Determine if the agreement will be a non-disclosure agreement only, or if it will also be a non-use agreement.
- If the employee or contractor is only prohibited from disclosing the confidential information, the agreement is a non-disclosure agreement.
- If he or she is also prohibited from using the information in his or her own business venture, the agreement is also a non-use agreement, and should specify that use, as well as disclosure, of the information is prohibited.
7Decide how confidential information will be disposed of during the course of the contract, and once the contract has terminated. Commonly, non-disclosure agreements require the return of all confidential information to the employer upon his or her request, and upon termination of the contract. If your confidential information is kept digitally, you may wish to require that the employee or contractor delete the information from any computers or storage drives in his or her possession.
8Determine how the agreement will be enforced. In general, money damages are not adequate compensation if confidential information is disclosed, and an injunction is required in order to prevent the employee or contractor from continuing to disclose the information.
- An injunction is a Court Order requiring a party to refrain from doing some act, in this case, from disclosing the confidential information. If money damages will not be adequate, your non-disclosure agreement should allow an injured party to seek an injunction.
9Include any standard provisions you wish in the non-disclosure agreement. Most contracts contain the following:
- a choice of law clause, which designates the state laws that govern the agreement;
- a severability clause, which states that if any provision of the contract is found invalid, the rest of the contract will still be enforced, and
- a provision that provides for the losing party to pay the attorney fees of the prevailing party, should there be a dispute.
We could really use your help!
money and finance?
- You should consult an attorney to determine if your non-disclosure agreement is adequate and legally binding in your jurisdiction, before relying upon it to protect your confidential information.
- Ensure that anyone who will have access to confidential information or trade secrets signs your non-disclosure agreement before providing them access to the information. The agreement is not enforceable until the employee or contractor has signed it and returned it to you.