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Employee Confidentiality Agreements: What They Are and What to Include

If your business or organization has confidential or proprietary information that you need to protect, an employee confidentiality agreement can help preserve the integrity of your data. Whether you want to protect proprietary processes, your internal methods, or even your sales and prospect lists, a confidentiality agreement can help.


What Is an Employee Confidentiality Agreement?

When you have data and methods that you need to protect, this legal document can be used to ensure that your team does not disclose your proprietary information to others. Competitors, hackers, and even unrelated businesses could seek to copy your processes, use your data, or steal the methodology you have worked so hard to create and implement. An employee confidentiality agreement is an added protection that preserves your information and prevents your employees from spilling your secrets to the competition. While an employee confidentiality agreement is used for your workers, a similar document can be used for independent contractors; the format, information, and protections offered are the same, only the audience differs.

What Does an Employee Confidentiality Agreement Protect?

You can tailor your employee confidentiality agreement to meet your specific needs. In general, an effective legal document of this type would be used to protect any or all of the following information:

  • Financial information
  • Prospective customer lists
  • Actual customer lists
  • Customer data, including transaction history, identity, and more
  • Products, including those in development
  • Marketing plans, business strategies, and more
  • Patent rights
  • Intellectual property
  • Products or intellectual property that the employee creates while employed by you

Be Specific

Be specific about what you want to protect; an overly broad or blanket agreement is not as enforceable as a specific, detailed one. Determine which information is most precious to your brand and which pieces of data would be most harmful if released or shared with a competitor. These are the items that need to be protected by your confidentiality agreement.

How Long Does an Employee Confidentiality Agreement Last?

Each agreement is unique, but in most cases the information covered by the agreement is protected until it becomes common knowledge or is made public. The employee can also be released from their obligation by the company, or you can specify a specific timeline and detail what actions will be taken if the agreement is breached before its end date.

What to Include In a Confidentiality Agreement

Your confidentiality agreement needs to be detailed and specific, but it does not need to be an overly complex, lengthy piece packed with jargon. Including the following key elements can help to protect your organization and ensure that both parties understand what is expected:

  • Parties – Who is covered by the document? The agreement should specify in detail the parties that are included. The organization's name (or their parent company) and the employee would be considered parties to this legal agreement.
  • Considerations – What does the employee get from the agreement? In most cases, they get to begin working for the organization (or stay employed) and the employer gets the protection of non-disclosure. This information is included to make sure the contract is valid and enforceable.
  • Protected data – What information is covered by the agreement? The document should clearly specify what is covered. A blanket “all” or “everything” statement will not work. Detail each item to be protected to ensure that both parties understand and that the agreement is truly protecting your important data.
  • Ongoing obligation – If the employee leaves, they are still obligated to maintain confidentiality even after their employment with you ends. This should be specified within the agreement to protect your organization.
  • Exceptions – What information or data is not included? You should clearly outline scenarios or data that is allowed to be shared. An employee is generally permitted to share things that are public knowledge or that have already been made public. They may also share the information if they are legally compelled to do so.
  • Return of property – When the employee leaves, they need to return all work products, notes, papers, files, and records. It may seem like that should happen anyway—and it often does—but outlining this clearly within your confidentiality agreement can help ensure that your information is secure and that the employee fully understands their obligations.
  • Remedies – What happens if the employee breaks the agreement? This section should outline what happens and explain that your organization will pursue legal remedies if the employee breaks the agreement and discloses your information to a third party.
  • Governing law – Which state’s laws will govern any disputes? Often, this will be where your home office is located. Disputes could be heard in different locales, but this information outlines which laws are to be applied.
  • Waivers – In some cases, a provision that allows your organization to waive its rights and allows the employee to disclose specific information can be included.

Employee Confidentiality Agreements Must Be Specific

It is tempting to cover everything in your confidentiality agreement, but it is not a good idea. Specifically detailing what pieces are covered ensures your most precious data is included. Overbroad confidentiality agreements may not be enforceable at all, so being specific and detailed is the best way to protect your brand and ensure that you can enforce the agreement if you must.

Who Needs a Confidentiality Agreement?

Your existing employees will often be covered by this form of agreement, but new hires or someone in the candidacy process who may need to see proprietary information could be covered as well. Some organizations use confidentiality agreements to protect themselves when hiring upper-level management candidates.

A consultant, independent contractor, or even vendor could be asked to sign a confidentiality agreement as well. This new document would not be called an employee confidentiality agreement since these individuals are not employees, but the core information and details would be very similar.

Should You Use an Employee Confidentiality Agreement?

You could choose to have every employee sign an agreement at the time of hire, but what about your existing employees? In some cases, asking existing employees can be tricky; they can see it as an indication that you do not trust them or that their position is not secure. If you decide to have all existing team members sign confidentiality agreements, proceed with caution and be aware that some employees could object or feel badly about being asked to sign.

Stressing that it is simply a new company-wide policy to protect the organization (and indirectly, their jobs) and that everyone is being asked to sign can help. The team will know they are not being singled out and will understand that everyone is being asked to conform to the new policy.

Some employers roll out confidentiality agreements for individual employees at the same time as annual performance reviews or when other perks are happening to prevent any ill will. If there is a raise, bonus, or promotion happening, you can add the confidentiality agreement at the same time and be sure it is well received.

Note: In some states, you cannot fire an existing employee if they refuse to sign a confidentiality agreement. Proceed with caution if you are in this situation and consult with an attorney before taking any action if you have an employee who refuses to sign.

Employee Confidentiality Agreement Considerations

Follow these best practices to ensure your employee confidentiality agreement is truly able to protect your organization and, if the worst happens, that it is enforceable.

  • Timing – Make sure your candidates, new hires, and current employees have the time they need to read through, review, and fully understand the agreement before they sign it. This allows them to ask any questions they need to and fully comprehend what they are agreeing to before they sign. If you require them to sign immediately, you may not be able to enforce the agreement legally if you end up in court. The employee could claim they were rushed and did not fully comprehend what they were signing.
  • Make copies – Make and sign two copies of the agreement so both you and the employee have a fully signed copy of the original.
  • Storage – Store the signed agreement in the employee’s HR file so you can retrieve it if you ever need to enforce or review it.
  • Post reminders – Include reminders of the need for confidentiality in prominent locations. It can be a topic for review at your annual meeting, included when confidential information is distributed, or as a general announcement.
  • Labeling – Label any new proprietary documents or information with a confidential stamp or label and clearly indicate that it is covered under your policy. This can prevent misunderstandings and serve as a reminder of the importance of confidentiality when you begin a new effort or project.
  • Warning systems – Prepare a warning system that will come into force if an employee breaches your agreement. This could include a formal letter to each employee who leaves your organization to remind them of their obligations. You can also include a copy of the agreement or discuss this in your exit interviews to make sure the departing employee understands their obligations to your organization.
  • Stay agile – Your needs for confidentiality and the information that your agreement covers could change over time. Make sure you regularly review your standard confidentiality agreement and adjust it as needed as time goes on. Adding new details as they become available and updating it regularly ensures that you are protected. You may also need different agreements for different employees as some are exposed to more information than others and may require a more comprehensive list of covered items.

Enforcing a Confidentiality Agreement

What happens if someone breaches your agreement? Well, it depends on the conditions you have included and how far you are willing to go to enforce it. You should consider your options before you create your employee confidentiality agreement so you have a clear path to follow.

  • Seek out an attorney – Legal counsel is needed at this juncture to help you determine what rights you have, that the contract has actually been breached, and what your losses are.
  • Send a letter – A firm cease and desist letter can be used to let the person who breached your agreement know that they need to stop sharing your intellectual property. It can also serve as a warning that you will take legal action.
  • File a restraining order – This can be used to prevent the former employee from sharing any additional information.
  • File a lawsuit – You will need to work with an attorney, conduct an investigation, and make sure you have the proper evidence in place. You need to be able to prove that the person you are accusing did leak your information and that they harmed your organization. You will also need to determine a dollar amount of your losses and be able to back that up with evidence. Once you have this information, you can take the offending employee to court.

Even if you do not win, your other employees will be aware of the extent that you will go to to protect your data and enforce your agreement.

Conclusion

An employee confidentiality agreement can protect your interests and clearly outline the information you most need to keep secure. Used with new and existing employees, this agreement can help you maintain confidentiality and give you a way of responding if your private data or proprietary information is leaked. This document does have to be specific, but it does not have to be long or overly complex. Taking the time to make an agreement and using it well can help to keep your brand secure.

How LegalNature Can Help You with Your Legal Form Needs

LegalNature can help you with all of your legal form needs. Let us help you get started today. Click here to create your employee confidentiality agreement now.


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