Chauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Written By Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
ContributorCassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Updated: Jun 1, 2024, 1:17pm
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A confidentiality agreement is a contract between two or more parties regulating the treatment of specified private information. While these agreements can exist in a variety of contexts, they are particularly relevant in the world of businesses and nonprofit organizations, where they prove essential to protecting internal information from public view.
While more complex agreements are possible, most confidentiality agreements simply have a disclosing party (with assumed control of the information in question) and the recipient on whom limits are being imposed. While these agreements provide legal recourse to the disclosing party for a breach, the language these contracts contain can just as easily protect a recipient in the event of a dispute between parties.
One of the most common types of information confidentiality agreements protect is knowledge of proprietary business information such as trade secrets and business strategies. This includes technical and commercial information such as the directions for creating a product or proprietary market research conducted by the company. It also includes knowledge of ongoing, confidential situations such as legal action or explorations into mergers and acquisitions, which guard against threats such as market manipulation and insider trading.
Executive salaries are a common subject of confidentiality agreements. An agreement may also specify purposes that the information in question can be used for and can bar either party involved from certain uses. There are no limits on the type of information that confidentiality agreements can apply to—only that the information is shared between the parties of the agreement.
Confidentiality agreements are governed largely by state law. Though they can be specific as to what they apply to and what they prescribe, these contracts can be notoriously challenging and expensive to enforce in court. Oftentimes, this is because of a necessity to provide proof the plaintiff suffered harm from the alleged breach.
In the event a confidentiality agreement is successfully enforced through litigation, there can be a number of remedies on the table. As with other similar legal matters, repaying monetary damages is often central among these remedies. Securing fair compensation, however, can be challenging. It’s difficult to prove the full extent of losses from a breach, especially when the breach’s impact will continue beyond the timeframe of litigation. As such, other forms of equitable relief are frequently sought. This commonly includes an injunction barring future dissemination of the information in question.
This critical component describes what is considered confidential by the disclosing party, setting the parameters of protected information. In negotiating an agreement, more inclusive definitions of what’s confidential are usually desirable to the disclosing party, though a confidentiality agreement may fall apart in court if it’s too inclusive and not reasonably enforceable. It’s usually in the recipient’s best interest to seek narrow definitions of what’s confidential.
This is where a confidentiality agreement gets into the specifics of how a recipient must handle the information in question, now that the scope of this information has been defined. An agreement spells out guidelines such as exactly to whom the recipient can and can’t disclose the information and what purposes it can be used for. In doing so, it should also define what constitutes a breach of the agreement.
The disclosing party usually acknowledges instances where the obligation of confidentiality won’t apply. Examples of these include information disclosed by a court order and information that becomes public independently of the recipient, though other exceptions may be more specific to the parties involved and the nature of the information.
While not the focus of a confidentiality agreement, this component importantly addresses any ambiguity about the recipient’s rights (or lack thereof) to the information in question. In most cases, the recipient must acknowledge that the disclosure to them of confidential information doesn’t imply any right to that information and that the disclosing party maintains ownership.
Some confidentiality agreements have no definitive endpoint and are ostensibly enforceable in perpetuity. Others specify a timeframe, bound either by a quantified amount of time or by occurrences without a timestamp, such as the eventual launch of a product or the duration of a recipient’s employment with a disclosing company. Agreements should specify when and under what conditions they can be terminated prematurely by either party.
True to its name, a unilateral confidentiality agreement is a one-sided contract restricting only the recipient. A bilateral agreement, on the other hand, holds two parties (or more, in the case of a “mutual” confidentiality agreement) accountable for protecting each other’s information. Unilateral agreements are perhaps more common and are frequently used by businesses to put restrictions on employees, while bilateral agreements are most common between two collaborating businesses.
Distinguishing further between different types of confidentiality agreements usually comes down to the type of parties involved. An “inventor agreement” is used by inventors to protect unpatented inventions. An “employee non-disclosure agreement” is presented by employers to their employees, while an “interview non-disclosure agreement” keeps rejected job applicants from disclosing information they learned during their interactions with an employer. A “standard” confidentiality agreement is a catch-all that can cover a variety of situations.
To illustrate the range and scope of confidentiality agreements, these are some examples of a confidentiality agreement:
Confidentiality agreements are incredibly broad legal tools available to almost any entity with privately held information. Due to their potential complexity, it’s always advisable to consult with an experienced attorney when questions arise. It’s typically more common for business owners to wish they’d drafted an agreement sooner than after information has been disclosed.
Even though they can prove valuable in many situations, confidentiality agreements can’t be viewed as a silver bullet for protecting information. Rather, they merely disincentivize disclosure for specific parties. By the time a breach occurs, there may be little one can do to effectively contain the spread of information. Because of how difficult they can be to enforce, one should carefully weigh entering into a confidentiality agreement with an untrustworthy party.
While there’s no guarantee they’ll hold up in court, it is certainly the intention to make them as enforceable as possible and those found to be in violation of a confidentiality agreement are subject to any remedies available to the disclosing party. In some specific instances, criminal charges could also be triggered.
Many people use the two terms interchangeably, though technically, a non-disclosure agreement is a type of confidentiality agreement. The apparent differences are based on to whom respective terms apply, though it’s difficult to reach consensus among experts on such specifics.
Most businesses will rely on professional legal assistance to draft an agreement. Templates for different types of confidentiality agreements can also be found online. We like this template for standard unilateral agreements provided by the Iowa State University Extension office.
Confidentiality agreement terms should be specified but confidentiality agreements can last indefinitely. This doesn’t mean a court won’t rule against one if its age impacts the viability of the stipulations. There is no external sunset clause—only limitations provided by the agreement itself.
Confidentiality agreements have certain limitations. For example, if the information is or becomes public knowledge through other sources, it can no longer be protected by a confidentiality agreement. They cannot be used in any form of illegal activities, including acts of discrimination or harassment.
