Enforcing Confidentiality Agreements

In short, yes, properly executed confidentiality agreements are enforceable. Confidentiality agreements fall under the broad scope of contract laws and operate similar to a contract. As such, both parties involved in a confidentiality agreement must consent to the terms of the agreement. Then, if the confidentiality agreement is breached, the non-breaching party may seek to enforce the terms of the confidentiality agreement.

Many businesses require their employees to sign confidentiality agreements, also called non-disclosure agreements, to protect company trade secrets and other work information learned while working there. Trade secrets are valuable information that provides businesses with competitive edges over other businesses. By signing a confidentiality agreement, the signing party agrees to refrain from disclosing any information about the specific points of information that the terms of the agreement specify as sensitive or important.

Confidentiality agreements are generally employment confidentiality agreements, which are agreements executed in an employer-employee relationship wherein the employee agrees to refrain from dispersing or sharing company information outside the scope of their employment.

In most cases, a confidentiality agreement will be presented to an employee before they begin their employment.

Once again, confidentiality agreements are typically enforceable; however some states require the agreements to be very specific regarding what information is protected. These states generally refuse to enforce confidentiality agreements that are too broad.

What Are Examples of Confidentiality Agreements?

Once again, there are numerous reasons a business may want to utilize confidentiality agreements. The following is a list of common reasons that a business may have its employees execute confidentiality agreements:

• To protect sensitive, technical, or commercial information from disclosure to competitors or the public;
• To prevent the forfeiture of valuable patent rights through failure to protect the information;
• To define exactly what information can and cannot be disclosed both within and outside the business;
• To protect the company’s trade secrets;
• To protect sensitive financial information or inside information that is not available to the public; and
• To prevent former employees from giving out private company information after they have left their position to competitors or the public.

The following list is examples of what a confidentiality clause may seek to protect:

• Machinery or methods that are utilized in the business setting;
• Technological developments that may not be readily known to the public or competitors or were developed in-house;
• Secret processes;
• Future business plans;
• Materials or ingredients that are used, such as secret formulas;
• Prices that are not public knowledge, such as the cost of materials and labor that make up an end product;
• Business data and formulas;
• Any employee work product that the business owns; and
• Other pirate or sensitive items that are otherwise specified in the confidentiality agreement.

What Is Required to Make a Confidentiality Agreement Enforceable?

As can be seen, there are numerous matters that a confidentiality agreement may cover. However, for a confidentiality agreement to be enforceable, it must be valid according to the contract and employment laws in the state in which it is executed.

Although the exact laws regarding forming a valid confidentiality agreement may vary by state, like any other contract, a confidentiality agreement will be considered valid if all of the following elements are met:

• Offer and Acceptance: One party, typically an employer offering employment, must make an offer to another party, commonly a prospective employee seeking employment, and that offer must be accepted;
• Consideration: The two parties must agree to exchange something of value.
  • In an employment context, when determining consideration for confidentiality agreements, this generally means that the employer offers a job along with the monetary value of paying an employee in exchange for the employee’s labor performed;
• Legality: The exchange that is defined in the confidentiality agreement must be legally enforceable.
  • This means that an employer cannot make an employee keep illegal activities confidential, as no court would enforce a contract based on an illegal act; and
• Capacity: Both parties must be old enough and considered mentally fit enough to enter into the confidentiality agreement.

In addition to the above elements, most courts hold that a confidentiality agreement must be reasonable. When determining whether or not a confidentiality agreement is reasonable, a court will look at:

• The interests of the employer in keeping the information specified in the confidentiality agreement a secret;
• The time that the information specified must be kept secret;
• The burden on the employee to keep the information secret, i.e., does it limit them from being able to work elsewhere; and
• The interests of the public.

Once a valid confidentiality agreement has been made, it is binding on both parties. Once again, this is typically the employer and the employee. This means that if either party fails to perform as promised in the agreement, that party can be held legally responsible in court.

Thus, if a party breaches the confidentiality agreement, the non-breaching party will be able to enforce the agreement and seek damages. In general, a party commits a breach of a confidentiality agreement if they fail to do what is promised in the agreement or do an act prohibited by the agreement.

For example, sharing a secret formula or process with a competitor after being terminated may be deemed a breach of their confidentiality agreement. In this case, the former employer would initiate a civil lawsuit against the former employee to enforce their confidentiality agreement.

Then, after the breaching party is served, they will have an opportunity to respond to the civil lawsuit and offer any legal defenses that may be available to them. For example, the former employee may allege that the confidentiality agreement was not valid because it was signed as a result of:

• Duress;
• Coercion;
• Misrepresentation; and/or
• Undue influence.

Do I Need a Lawyer?

A confidentiality agreement is valid and enforceable, so it is a good tool for a business to protect itself from intel leaks and unfair competition. If you are looking to protect your business and seeking to create a valid and binding confidentiality agreement, it is in your best interests to consult with an experienced contract lawyer.

An experienced contract lawyer will be able to help you understand your local jurisdiction’s laws and requirements concerning forming valid and enforceable confidentiality agreements. Additionally, an attorney will also be able to help you understand how to execute the drafted agreements properly.

If a former employee or other party breaches a valid confidentiality agreement, an attorney will be able to help you understand your best course of legal action. If a civil lawsuit is needed, an attorney can also help you initiate a private civil lawsuit against the breaching party. Finally, an attorney can also represent your business in court, as needed.

On the other hand, if you are an employee who is being asked to sign a confidentiality agreement to secure employment, you may also wish to have an attorney review the terms of the agreement. An attorney can ensure that your legal rights are being protected and that the confidentiality agreement is reasonable.