Keeping Secrets: Best Practices for Employee Confidentiality Agreements

Businesses of all sizes often have valuable confidential and proprietary information for which employees have exposure to during their employment, an disclosure of such information by an employee may be catastrophic to the company. Confidentiality agreements are often used as a tool to minimize risk to companies that an employee (or ex-employee) would expose company secrets. In order to prepare an effective confidentiality agreement, a business must make a number of important considerations including: the type of business, the type of information that the company considers confidential and proprietary, what access the employee has access to, and what non-disclosure restrictions are appropriate given the circumstances. Companies must also consider federal and state law and legal requirements for confidentiality agreements such as consideration, scope, duration, and employee rights. The following article provides common questions every company must answer in preparing a confidentiality or non-disclosure agreement.

1.    Is there adequate consideration? State law varies on what is deemed adequate consideration to support a confidentiality or non-disclosure agreement. In some states, new or continued employment is sufficient. In other states, employers may have to provide more such as additional payment, benefits or promotion. Inadequate consideration may invalidate the entire agreement. 

2.    Have you adequately defined “Confidential Information”? What employers are seeking to protect should be clearly defined and tailored to the employee’s position and duties within the company. An agreement that defines confidential information too narrowly may put the employer at risk by leaving out information to be protected, and an agreement that is drafted too broadly risks not being enforced by a court of law. Employers also need to ensure that the agreement does not violate labor laws such as the Labor Relations Act (NLRA), or prohibit whistleblowers from reporting corporate wrongdoing to an appropriate regulatory agency such as the Securities and Exchange Commission (SEC). 

3.    What are the employee’s obligations during employment?Obligations should be clear to the employee, such as the requirement to keep information confidential and under what circumstances the information may be disclosed. Employees should also understand when they must notify the employer if confidential information is being requested. Again, the employer must evaluate the employee’s obligations for compliance with legal requirements mandated by the NLRA and SEC. 

4.    Does the agreement define obligations after employment? Employers need to ensure that employee’s understand not only obligations during employment, but also that such obligations survive termination of employment. Employers will also want to minimize risk by requiring company property be returned at termination, and require that an employee disclose the existence of a non-disclosure agreement to a new employer. 

5.    Are other provisions warranted?Employers also want to consider whether any other provisions are appropriate for the confidentiality agreement such as IP provisions, arbitration clauses, and remedies. Various provisions may be useful or necessary depending on the particular circumstances. 

 Confidentiality agreements  or non-disclosure agreements can be vital for any company seeking to protect valuable confidentiality or proprietary information. Once this information is leaked by an employee or ex-employee, it may cause irreparable loss. There are a number of specific provisions all confidentiality agreements should contain depending on the type of company, information and employee. At SK&S Law Group, we are well versed in drafting and reviewing confidentiality agreements, and also representing clients where an employee has breached a confidentiality or non-disclosure agreement or provision. If you have questions, please contact an SK&S attorney to set up a meeting today.