A confidentiality agreement, sometimes called a non-disclosure agreement (NDA), is a legally binding contract that outlines the terms and conditions for sharing and protecting confidential information.
When two parties enter into a confidentiality agreement, they agree to refrain from disclosing or using specific confidential information for unauthorized purposes. Confidential information often includes trade secrets, customer lists, or other sensitive proprietary data.
How Do You Review a Confidentiality Agreement?
It is essential to thoroughly review a confidentiality agreement when entering into a new business relationship, collaboration, or transaction where sensitive information must be protected.
If you are wondering how to review a confidentiality agreement, follow these steps:
- Read the entire agreement. It is common for parties to skim an agreement or fail to read it altogether. To conduct a thorough contract review, you must carefully read the entire document, including the fine print. These contracts contain important terms that can affect your rights and obligations pertaining to sensitive information.
- Specify the confidential information. The information that is protected by the confidentiality agreement must be clearly described. It is important that each party understands what information is confidential and the restrictions on that particular information.
- Review boilerplate clauses. Pay close attention to boilerplate clauses like severability, waivers, and integration clauses. It is easy to skip over these during contract review which can lead to unforeseen consequences down the road.
- Check for clarity. A confidentiality agreement should be clear and unambiguous. Make note of any clauses that may be confusing or misinterpreted by the parties. Unclear language can lead to contract disputes.
- Seek legal advice. Confidentiality agreements can be complicated so if you don’t fully understand your rights and responsibilities, you could face consequences in the future. If any part of the NDA confuses you, always contact an attorney who specializes in confidentiality agreement contracts.
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What Should Be Included in a Confidentiality Agreement?
A well-drafted confidentiality agreement should include the following key components:
- Identification of parties. The names and details of the parties entering the confidentiality agreement.
- Description of confidential information. Define what constitutes confidential information including the type of information that will be shared under the agreement.
- < Duration. The duration confidentiality obligations will be in effect. Some confidentiality agreements will remain in effect indefinitely depending on the sensitive information.
- Obligations of the receiving party. The responsibilities and obligations of the party receiving the confidential information including restrictions on disclosure, use, and access to the information.
- Permitted disclosures. Exceptions that allow the receiving party to disclose confidential information which commonly include disclosures required by law or disclosures with the disclosing party's written consent.
- Return or destruction of information. The process for returning or destroying confidential information when the agreement expires or when it is no longer needed.
- Dispute resolution. How disputes arising from the agreement will be resolved which can include methods like mediation or arbitration.
- Consequences of breach. The consequences of a breach of the confidentiality agreement, including potential remedies and damages that may be pursued.
- Termination clause. The conditions under which either party can terminate the agreement. This section should include required notices, penalties, and how confidential information should be returned or destroyed.
- Governing law and jurisdiction. The governing law and jurisdiction that will apply in case of legal disputes.
- Signatures. All parties involved should sign the contract to indicate their agreement to the terms and conditions.
Every confidentiality agreement is unique and may require additional clauses or provisions to meet the needs of both parties. A knowledgeable attorney can assist in drafting and reviewing your confidentiality agreement to ensure it contains all required information.
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What is the Difference Between an NDA and a Confidentiality Agreement?
Confidentiality agreements and non-disclosure agreements (NDAs) are both contracts that restrict the use and disbursement of sensitive information. These contract names are often used interchangeably because there is no significant difference between them.
Both confidentiality agreements and NDAs outline the terms and conditions under which parties share and protect confidential information. The choice of terminology may vary depending on the region or industry, but the essential purpose and content of these contracts are the same.
What Voids a Confidentiality Agreement?
A confidentiality agreement will be void or unenforceable under certain conditions. The following circumstances may void a confidentiality agreement:
- Illegal purpose. If the agreement is intended to protect illegal activities, it will likely be unenforceable.
- Lack of consideration. All contracts must involve an exchange of value between the parties to be enforceable. If one party fails to provide something of value in exchange for the other party's confidentiality obligations, the agreement may be unenforceable.
- Unreasonable or overbroad terms : A confidentiality agreement may be unenforceable if the terms are overly restrictive, unreasonable, or excessively broad.
- Publicly available information : A confidentiality agreement cannot protect information that is available to the public. The protected information must be legitimately confidential for the agreement to be enforceable.
- Breach by the disclosing party. If the disclosing party breaches the agreement by disclosing the protected information to another party, the contract may not be enforceable.
- Unconscionability. If the confidentiality agreement includes terms that a court deems “unconscionable”, then the agreement will not be enforced. Unconscionable terms are terms that are unfair, unjust, or are overly oppressive.
Parties can avoid these common situations by hiring a lawyer to draft and review a confidentiality agreement. A knowledgeable attorney will know how to draft a confidentiality agreement that avoids these common mistakes which can render a contract void.
Should I Have a Lawyer Review a Confidentiality Agreement?
Yes. It is always advisable to hire a lawyer to review your confidentiality agreement. While it is possible to review your own contract, hiring a lawyer will provide the following benefits:
- Legal expertise. A contract lawyer who specializes in confidentiality agreements will be well-versed in the complexities of these agreements and can ensure that the agreement is drafted correctly and legally enforceable.
- Legal requirements. Different industries, like healthcare, have specific legal requirements for confidentiality agreements. It is important to hire a lawyer who is familiar with the regulated industry to review the confidentiality agreement for potential mistakes and compliance.
- Risk mitigation. Lawyers can identify any potential risks or loopholes in the agreement and provide guidance on how to mitigate them.
- Advocacy. If the contract needs to be revised, a lawyer will advocate on your behalf during the negotiation process to ensure that the contract represents your interests.
- Peace of mind. When a lawyer reviews your confidentiality agreement, you will have the peace of mind knowing that your agreement is legally sound and protects your interests.
Confidentiality agreements that contain critical business information or complex legal terms should be reviewed by a contract lawyer. Your lawyer will provide valuable legal insight, help you understand your rights and obligations, and ensure that the agreement protects you and your business.
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