Need to share strategies, processes, and other sensitive information such as trade secrets to another individual or business? Make sure to keep a lid on your proprietary information so it doesn't fall into the wrong hands. Learn more about confidentiality agreements and how they can protect your valuable trade secrets far better than raised hands and pinky promises.
What is a confidentiality agreement?
A confidentiality agreement is a legally binding document wherein a person or entity agrees not to share specific information without proper authorisation or compulsion. The purpose of a confidentiality agreement is to ensure that when you share sensitive information, you can hold another party accountable should they disclose said information to unauthorised third parties.
What is the difference between a confidentiality agreement and non-disclosure agreement?
There really is no difference between a confidentiality agreement and a non-disclosure agreement (NDA). Regardless of how it’s called, the legal document addresses the matter of promoting and protecting privacy of information.
What is confidential information?
Coco v A N Clark (Engineers) Ltd  RPC 41 at 47 provides the elements of the action of breach of confidentiality as follows:
- information needs the quality of confidence about it;
- must have been imparted in circumstances importing an obligation of confidence; and
- unauthorised use.
Generally, the information should also have a degree of specificity and the imposition of confidence must be reasonable in the circumstances.
In a business setting, this can include marketing and sales strategies, business processes, financial information, and customer information.
What should be included in a good confidentiality agreement?
Essential clauses and provisions included in a confidentiality agreement are:
- the parties;
- the type of agreement (one-way or mutual disclosure);
- a description of the confidential information;
- the duties and obligation of the parties receiving the confidential information;
- the duration of the confidentiality agreement’s validity;
- indemnification for any loss or damages; and
- confidentiality obligations post-termination.
When should an NDA or confidentiality agreement be used?
A confidentiality agreement is necessary in binding parties to secrecy whenever there is an exchange of sensitive information. You’ll find confidentiality agreements most helpful in situations such as:
1. Hiring contractors/ upper management level people
With valuable data like customer mailing list, supplier and funding agreements, business processes, and other know-hows, an NDA can ensure that a contractor or upper management level employee do not reveal your company secrets to your competitors and jeopardise your business.
2. Meeting with potential investors and buyers
When closing a deal with investors or buyers, you will need to highlight certain aspects of your business and in the process, reveal a lot of information like your unique value proposition, finances, future plans, etc. Make sure you are protected before you show all your cards.
3. Outsourcing services
If you’re working with a service provider who has been granted access to sensitive information, consider presenting an NDA to protect your hard-earned assets.
Frequently Asked Questions About Confidentiality Agreements or NDAs
1. What happens if you break a confidentiality agreement?
Failed to comply with your contractual obligations? One consequence of breaching an NDA (whether actual or anticipatory) can be injunctive relief. Either you will seek an injunction from the court to prevent further disclosure or misuse of confidential information or demand for liquidated damages.
2. Do I have to sign a confidentiality agreement?
No. However, note that refusing to sign the agreement could be interpreted as you refusing to comply with the business’ confidentiality policies. While there may be individuals or businesses that are willing to reach a compromise to keep working with you, others might not want to take the risk of information leaks.
3. Can I tell someone a confidential agreement exists?
Yes, because generally, NDAs only restrict you from revealing sensitive personal or business information. The agreement does not exactly stop you from saying you signed the document, unless written otherwise.
4. Do confidentiality agreements hold up in court?
As with other legal documents, confidentiality agreements are more likely to be enforced in court if you consider the certainty and reasonableness of the terms, the intention of the parties, and clear definition of the confidential information.
Finding a Good Confidentiality Agreement
While there are loads of confidentiality agreement templates available online, using them is a gamble as they rarely take into account your unique circumstances. We at TNS Lawyers can help you have a clear understanding of the confidentiality process and can assist you in revising an existing template or drafting a new agreement with your best interests in mind.
Learn more about how we can help you by giving us a call on (03) 9052 3214 or by filling out the form below.