Last Updated March 7, 2024
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What is a Confidentiality Agreement?
A Confidentiality Agreement is a legally binding contract that individuals or businesses use to protect sensitive or private information. This is a common business document that protects intellectual property, copyright, operation details, and more.
The disclosing party is the person or business revealing confidential information, and the receiving party agrees to keep that information private. The agreement outlines the reasons for disclosure and the legal remedies that are available to the disclosing party should the receiving party breach the agreement by misusing the information outside of those stated permitted uses.
A Confidentiality Agreement is also known as a Non-Disclosure Agreement.
When to use a Confidentiality Agreement
There are several situations where a Confidentiality Agreement is an important tool. LawDepot’s Confidentiality Agreement template can create an agreement between:
1. Employers and employees
Often, confidentiality obligations are part of an Employment Contract that an employee signs when they begin their position. The contract will outline the use of contact information, marketing techniques, Business Plans, and more.
However, if an existing employee takes on a role dealing with confidential information they didn’t have access to before, the employer may need them to complete a Confidentiality Agreement. The agreement will reinforce any actions an employer requires of their employees and what information they must keep confidential during and after employment.
2. Clients and contractors
Contractors may need access to sensitive information to complete a project for a client. A Confidentiality Agreement can ensure that details, such as alarm and gate codes, are kept private and confidential during and after a project’s completion. In addition, clients and contractors should always use Independent Contractor Agreements.
3. Sellers and buyers
Selling a business requires disclosing confidential business and financial information to a potential buyer so the buyer can make a more informed decision about the transaction. This is also known as due diligence. To protect these confidential materials, a seller should insist that a Confidentiality agreement be signed before any information is disclosed.
Once a Confidentiality Agreement is complete, both parties should write and sign a Letter of Intent as it establishes the good faith of both parties and sets out a structure for negotiations and a Business Purchase Agreement.
A Confidentiality Agreement can also be useful for other sales transactions requiring confidential disclosures as part of negotiations.
4. Inventors and evaluators
An inventor needs evaluators to get their project to the next step with the right funding and investors. To keep their intellectual property safe, they may use a Confidentiality Agreement to secure any information they share during this process.
5. Other parties
Other situations where a Confidentiality Agreement can be used include contracts between clients and suppliers, researchers and focus groups, therapists and group therapy, and more. LawDepot’s Confidentiality Agreement template allows you to customise your document to protect your private and confidential information easily.
Confidential information includes details, facts, or data that are not common knowledge or part of the public domain, meaning the duration of copyright has ended. Here are some examples of sensitive information that a Confidentiality Agreement can protect:
- Computer technology and security practices
- Products and manufacturing information
- Marketing and development practices
- Banking and financial information
- Business operations
- Services provided
- Customer data
How to write a Confidentiality Agreement
LawDepot’s Confidentiality Agreement is customisable for specific relationships between a disclosing and receiving party. Once you select the relationship of both parties, easily create your agreement by including the:
- Details of the confidential information
- Location (i.e., state or territory where the contract is created or where both parties are based)
- Disclosing and receiving party information
- Additional clauses, such as a non-compete or non-solicitation clause, if applicable
- Duration of the contract, meaning how long the receiving party is bound to confidentiality
- Signing details, including any witnesses
Our template is available for each state or territory to ensure it follows all regulations to make a legally binding contract in your jurisdiction.
What are non-compete and non-solicit clauses?
Non-compete and non-solicit clauses are known as restrictive covenants which prohibit specific behaviour or actions for the receiving party. Let’s discuss each clause:
- A non-compete clause restricts the receiving party from starting a competing business or disclosing confidential information to competitors. This is common when working with marketing techniques or business plans. It’s important to note this clause cannot prevent people from working for competitors.
- A non-solicit clause restricts the receiving party from hiring employees or contractors who work for the disclosing party. For example, the receiving party cannot poach any employees if they leave your company and start their own business or become a hiring manager at another company. It is important to note that a court may only uphold this clause if the time period is reasonable.
How long do confidentiality agreements last?
Our Confidentiality Agreement can have a specific end date, a five-year limit, or be an indefinite agreement. How long an agreement lasts depends on the parties’ relationship or if the information becomes public domain. The most common period for an agreement to be in place is between one to five years.
An example of when an indefinite Confidentiality Agreement is used for trade secrets, as the government recognises them as confidential until they’re made public domain.
Is a confidentiality agreement legally binding?
Yes, a Confidentiality Agreement is a legally binding and enforceable contract. LawDepot’s Confidentiality Agreement includes a remedies clause to ensure both parties understand the outcome if the receiving party breaks the agreement.
Should the receiving party breach the contract, the disclosing party may issue a Cease and Desist Letter to stop them from using shared information inappropriately. They can begin legal action if that warning fails to stop the misuse by seeking an injunction against the receiving party.
The obligation to prove the need for an injunction is very high due to the nature of the proceedings. Only the applicant will have representation in court for the initial hearing. To assist with making a case against a receiving party, LawDepot’s Confidentiality Agreement includes an acknowledgement that damages are an inadequate remedy for breach of confidentiality.