Sections to Include in a Confidentiality Agreement Form
Your business should have a ready-to-use confidentiality agreement form to protect you from having confidential information stolen by anyone you do business with.
What is a Confidentiality Agreement?
A confidentiality agreement, sometimes called a non-disclosure agreement or NDA, is a business contract between a business and someone else to protect sensitive company information, products, trade secrets, and proprietary (company-exclusive) systems.
Confidentiality agreements can be made by a business with employees and potential employees, and also with outsiders, like suppliers, outside sales agents, technology firms, or consultants. You might also want a confidentiality agreement if you are buying and selling a business.
A confidentiality agreement might be one part of an overall agreement like an employment agreement or a letter of intent for a business deal. In all cases, it’s the company who is requiring the non-disclosure, and the other party is agreeing.
State Laws on Confidentiality Agreements
Confidentiality agreements are considered restrictive covenants because they restrict or limit the freedom of an individual. In the case of the NDA, the restrictions might hinder someone from doing business. These agreements must conform to the laws of the state where they are written or where the parties agree. Some states, like California, have more restrictions on these types of agreements.
Before you write and sign a confidentiality agreement, get help from an attorney to make sure you include the language required by your state.
What Language is Needed for a Confidentiality Agreement Form?
Here are some of the sections in a confidentiality agreement form for an employer/employee situation.
The sample language included here is only for your general information. Your attorney will need to create specific language to apply to your business situation and the two parties involved.
- Date the agreement. This is the effective date.
- State the two parties, their relationship (Employer/Employee) and the reason for the agreement, including names and identification. It’s important to provide identification, like an address, so there’s no misunderstanding about who signed the agreement.
For an agreement between buyer and seller of a business, for example, after you have identified the seller and buyer:
The Seller and the Buyer agree that the Buyer will protect confidential information (“Confidential Information”) described in section X .
- Include a statement that the agreement will be governed by the laws of the State of ___________. As noted above, this part is important; don’t leave it out.
- State that the employee (or potential employee) may be receiving confidential information as a result of the recruiting process or during employment.
The Employee will receive from the Employer or develop for the Employer, Confidential Information as defined in Section __ of this Agreement and as a result of employment with the Employer.
- State what is confidential. It’s sometimes called the “Confidential Information,” meaning everything in this list. This is the most important part.
The term “Confidential Information” as used in this Agreement means any information or material owned by the Employer which has been received by or developed by the Employee and which is not generally known to the public, specifically…
(Here is where you would list the Confidential information.)
Be as specific as possible. Here are some aspects of a business that you might want to include:
- Information about customers
- Intellectual property (patents, copyrights, trademarks/service marks)
- Marketing and Sales information
- Information about products, including those being developed
- Proprietary computer codes, applications, and computer technology
- Accounting and tax information
- Include a description of what is not covered by this agreement. This is information that is not confidential because it’s generally known or becomes available to the public, or was already known by the Employee. Sometimes there is also a section describing situations when the Employee may disclose Confidential Information.
- State the obligation of the employee.
Except as otherwise provided in this Agreement, the Employee must keep the Confidential Information confidential.
- State that the Confidential Information remains the property of the Employer.
- Also, state that the obligation to keep the Confidential Information confidential “survives the agreement and the employment.”
The obligations to protect the confidentiality of the Confidential Information as agreed to by the Employee will survive the expiration or termination of this Agreement and those obligations will last indefinitely.
- Include remedies, describing what happens if the employee breaches the contract by revealing Confidential Information. State that the breach would “cause irreparable injury” to the business. The usual remedy for this type of contract is an injunction, an order by a court to stop the employee from revealing any more secrets. The court may also impose fines. State that “time is of the essence” to give more urgency to an injunction.
- The employer may also require the return of Confidential Information.
- State when the agreement ends and what notice must be given to the other party about the termination.
Reasonableness of the Agreement
Confidentiality agreements, like other restrictive covenants, can be thrown out of court if the terms are unreasonable (if they unreasonably restrict the rights of one of the parties). As noted above, California and several other states deny almost all restrictive covenants.
Some confidentiality agreement forms include a clause that states “Both parties acknowledge that this agreement is reasonable, valid and enforceable.” This is intended to (hopefully) keep a state from declaring the agreement unreasonable.
Get Help with a Confidentiality Agreement Form
Get help from an attorney in preparing this form. As you can see, this form is complicated, and it’s important to get it right if you want to protect your business. Every business is unique and you want to make sure your business is protected.