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What is a Confidentiality Agreement?

A Confidentiality Agreement, also known as a Non-Disclosure Agreement, is a written contract between two parties governing the exchange of confidential information during and after the course of the relationship between those two parties. Such an agreement will specify ‘what’ can be disclosed, ‘why’ the information is being disclosed and ‘how’ the recipient of the confidential information can use the information that was disclosed to them. It is designed to protect the information from being used outside the scope of the relationship.

It is best to enter into a Confidentiality Agreement before the relationship begins –keep in mind that the agreement is only effective if it has been signed! (Obvious statement we know, but we have seen a lot of unsigned, or incorrectly signed confidentiality agreements).

When is Confidentiality Agreement used?

Commonly, a confidentiality agreement will be made between an employer and employee (as part of the employment contract), an employer and independent contractor, or between two businesses looking to enter into some sort of commercial arrangement. There are hundreds of other situations where such an agreement can be useful. Literally!

Think your information isn’t sufficiently ‘important’ to be confidential?

If you think that the information you want to disclose isn’t sufficiently secret or important so as to be able to be protected as confidential information… then think again. As we discuss in this article the hurdle to get over to show your information is confidential is quite low!

Two-way or One-way Agreements

The confidentiality agreement can be: mutual/two way, where both parties to the contract will be disclosing confidential information to the other party; or unilateral/one way, where only one party will be disclosing confidential information to the other party.

Description of Confidential Information

A party disclosing confidential information usually defines exactly what information is protected under the agreement. Ideally, there should be no room for any misunderstanding. The type of information able to be included under the agreement can be information transmitted in writing or verbally, such as information about employees, financial information, prices and margins, intellectual property owned by the business, discussions about the future of the business, or maybe discussions about new production lines… the list could go on and on, it all depends on the circumstances of the relationship.

How Confidential Information can be used

In addition, these agreements are useful for stipulating exactly how the confidential information can be used throughout the course of the relationship, and what happens to this information, or how it should be dealt with, once the agreement comes to an end.

In case of breaching (or breaking) the agreement

The agreement might also specify what the procedure would be if there was a breach of the terms of the agreement. But bear in mind, a Court may actually end up deciding on the appropriate remedy. For instance, the Court may decide whether a party can seek damages, or whether they could seek an injunction (which is an order by a court compelling someone to either do something or stop from doing something) to prevent any further harm in the instance where a party has not acted in accordance with the agreement.

Protected Information

After both parties have signed a Confidentiality Agreement, confidential information transferred during the relationship is protected under the agreement. Nevertheless, it is important to remember: what has been seen cannot be unseen, so don’t disclose information before you have an agreement in place!

As fantastic as it would be, we can’t put in place a kind of “We wish you hadn’t seen that Confidential Information Agreement”(even though there are some steps you can take if you have disclosed confidential information without an agreement in place and you want to try and protect that information).

If your confidential information was disclosed by mistake it could cause your business irrevocable harm. Prevention is key!

Whilst Confidentiality Agreements are a considerably effective method of preventing harm, if you truly don’t want someone to know your confidential information… here’s a tip… ‘don’t tell them’. How many people know the Coca-Cola formula or the Colonel’s Secret Herbs and Spices?

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