Commercial Law

What is a Confidentiality Agreement and what is their importance?

A Confidentiality Agreement is also known as a Non-Disclosure Agreement (NDA). It is a legal contract which tries to protect the secrecy of a business’ valuable intellectual property (IP). A Confidentiality Agreement is only enforceable if it is signed by all parties; therefore, it is important that it is signed before either party shares any confidential information.

While the type of information contained in a Confidentiality Agreement or NDA could be quite broad, you often find it ensures the privacy of information such business financial data, marketing strategies, trade secrets or test results. A confidentiality agreement can’t protect information that it is already common knowledge or in the public domain.

When would you enforce a Confidentiality Agreement?

One of the most common users of a Confidentiality Agreement is a start-up company who is sharing unique, confidential information with potential investment groups.

Some other examples of common situations where a Confidentiality Agreement may be useful includes:

  • between an employer and employee, where the employer wishes to share information about the business that he or she wishes to remain confidential both during employment and after the employment relationship has ended;
  • during negotiations for the sale of a business where the seller wishes to disclose sensitive information (i.e. financials) to a prospective purchaser; and
  • when a person wishes to develop a new product and requires third party providers to assist them with the production process.

Breach of Confidentiality Agreement

If one party breaches the terms of the Confidentiality Agreement and discloses confidential information without authorisation to, there are a number of repercussions which could follow.

If you suspect a breach has occurred, it is important to determine:

  • How was the confidential information was released?
  • Was it breached intentionally?
  • What affect does the release of the information have on your business, both from an economic point of view and a more general perspective?

Typically, a remedy clause in the contract would grant the employer the right to ask for an injunction (a court order that requires or prohibits a certain action) and to seek damages for lost profits. If the breach of the confidentiality agreement has had a significantly detrimental effect on your business, it is important to discuss your options with a lawyer.

Summary

Before sharing any important business information and details with outsiders or your employees, you should seek expert legal opinion.

This article is not providing legal advice.

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