Should I have my employees sign confidentiality agreements?

A business can have secret information that it relies on to grow. These innovations and creative ideas need to be legally protected to ensure the company maintains its advantage.

A confidentiality agreement, also known as a non-disclosure agreement, can be a way to hold less scrupulous employees or new employees and prospective business partners at bay so the company doesn’t lose sensitive or proprietary information or have its ideas taken and used by a competitor.

How does it work?

A confidentiality agreement is a legally binding agreement that businesses can use in situations when it plans to work with individuals or another company or organization. It’s used in situations when the business will be sharing non-public or proprietary information.

Proprietary information is used to describe types of information that have value to the owner. Inappropriate disclosure of this information could diminish the value or destroy the information if it is disclosed without safeguards. This is information that’s not generally known and can come in the form of records, software and other work products. Proprietary information is generally considered difficult or costly to create.

All parties involved are required to sign the confidentiality agreement in order for it to be adequately enforced and to demonstrate they understand they are legally bound from disclosing the confidential information. The agreements are dated and filed for future reference.

Confidentiality agreements are common in situations where companies are working on a joint business deal or a merger in which one company has access to processes and procedures used by another company. This could include anything from software programs to “secret” recipes, according to the New York Times.

What does it cover?

A confidentiality agreement is not a blanket statement that protects all information. Rather both parties agree on which information falls within the confidential arena. The rest is commonly known knowledge.

The agreement also doesn’t need to be long or complicated. Usually a couple of pages is enough to cover all of the necessary elements. The agreement outlines who is in exact ownership of the property and identifies the parties involved; explains what property needs to be kept confidential, under what circumstances the confidential information can be used, what will happen if there is a breach of contract and how contract disputes will be settled; and sets a timeframe for the duration of the confidentiality.

For example, if a company were working on a new business idea or invention with investors, customers, distributors, potential partners and others, they might want to protect details of the discussion from being taken and used elsewhere. A non-disclosure agreement can help guarantee the business secrets stay secret.

Confidentiality agreements also are important to a company’s ability to maintain valuable intellectual property rights.