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What is an Employee Confidentiality Agreement?
An employee confidentiality agreement, also known as a nondisclosure agreement (NDA), is a professional legal contract that deters potential information leaks. In addition, it warns employees of the consequences of engaging in any abuse of confidential information.
With lawsuits reaching an all-time high, companies should invest in confidentiality agreements, especially when hiring employees. A valid non-disclosure agreement should protect crucial company information mentioned below.
- Customer data such as identity or transaction history
- Financial data
- Future customer list
- Company products, especially those in developmental stages
- Intellectual property
- Specific products invented by an employee while working for an organization
- Scientific information
- Patent rights and copyrights
- Proprietary software
- Samples and prototypes
- Know-how and concepts
What Should Be Included in an Employee Confidentiality Agreement?
Preventing employees from sharing sensitive, confidential information is a huge challenge for most companies. However, remember that even the most honest people can fall under pressure and disclose something off point.
As a result, most savvy organizations include a confidentiality agreement in the employment handbook. Others have it as a stand-alone document or in an employee separation agreement. This refers to a written contract that breakdown the terms between workers and soon-to be-previous employers.
However, companies should include specific aspects in the contract to make it legally binding. Some of the terms to include are below:
- Parties Involved. The document should indicate all implicated in the process. These boil down to the disclosing party, receiving party, and all representatives concerned like lawyers, agents, officers, and directors.
- Protected Information. The legal document should state-specific information protected by the contract. In short, it confirms in writing the information given to the receiving party.
- Limits and Exclusions. State the non-confidential status of information obtained through public knowledge, third-party, or learned independently about an organization.
- Governing Law. Specify the state laws to govern the employee confidentiality agreement.
- Return of Company Property. It is the norm for employees to return company properties like records and files at the end of a contract or after termination. Outlining this information in the confidentiality agreement ensures that workers understand company obligations better.
- Waivers. Sometimes, an employer can include provisions that allow the company to waive some restrictions. In short, the segment enables the workforce to reveal certain company information for specific reasons.
Receiving Party's Obligations. Companies can include disclosure provisions, non-disclosure contracts, and improper use of confidential data. The confidentiality agreement may also state that the disclosing party owns all the concepts a recipient produces during employment. Standard disclosure provisions clauses include;
- No use. Ensure that recipients do not utilize company information for purposes other than those indicated in the contract.
- Best Efforts. State that both parties should give their best in contractual obligations.
- Need to know. This clause restricts access to the recipient's staff.
- Time Frame. Include the date the contract becomes valid. It may expire after a specific event or set term. Most contracts run for approximately 2-5 years. However, disclosure terms should indicate that disclosing parties hold on to intellectual property rights after the end of a period.
- Injunctive Clause. The section offers the disclosing party a chance to block the other side from breaching confidentiality through injunction or court orders.
- Discloser to the Recipient. This is not an ordinary provision in a nondisclosure agreement. Since the recipient agrees to remain mum, they have every right to receive the company's confidential information.
- Signatures, Names, and Date Signed by all Parties. Both parties must thoroughly read the contract and understand every segment before signing.
Purpose of Employee Confidentiality Agreements
While employee confidentiality agreements may be a standard business practice, it is essential to understand their true purpose. After all, these legal contracts have become more of a necessity than a nice-to-have in this day and age.
Confidentiality requirements are critical if an employer has proprietary or secret information prone to disclosure. Still, they come in handy in the intentions listed here.
- Emphasis on the significance of non-disclosure. Thanks to this document, you reduce the chances of company secrets spreading out.
- Deterrent to parties likely to consider deliberate disclosures. Such individuals understand the ugly repercussions of their unlawful actions.
- Court advantage. In cases of abuse of confidential information, a non-disclosure contract works to the company's advantage in court.
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How Do You Write an Employee Confidentiality Agreement?
Writing an employee confidentiality agreement is essential to organizations of all calibers. When drafting this legal document, you'll need to use key terms from the employee nondisclosure agreement.
You should also make sure the deal includes non-solicitation, non-compete, and severance provisions. Get started by using this straightforward template. You only need to create, download, and print your copy within minutes.
Are Employee Confidentiality Agreements Enforceable?
In most states, courts enforce employee confidentiality agreements if they sound reasonable. Therefore, it is no surprise that companies create documents that encompass a considerable percentage of their information.
Lawmakers may disagree with such a plan because these contracts should only prohibit the spreading of highly confidential information. Moreover, the information may differ from one organization to another but mainly emphasizes strategic goals, financial data, intellectual property, and client lists.
It is prudent for employers to hire experienced employment lawyers to draft confidentiality policies according to the law. On the other hand, employees need to agree with these agreements before signing because they can interfere with future career goals.
Key Issues for Employees in an Employee Confidentiality Agreement
The matter of confidentiality is of paramount importance in employment law. However, some drawbacks are associated with an overly strict employee confidentiality agreement.
Expensive to Enforce
Enforcing a confidentiality agreement is way beyond most average-performing companies in recent times. There are more reasons for this, although high courts have a massive dislike for these agreements.
To enforce these contracts, you must sue the breaching party first. Moreover, the process requires a lot of energy and time, particularly if you fail to establish damages. In such a scenario, weigh the pros and cons before running into losses.
The law has some limitations on contracts depending on the subject matter, period, and geographic area. Generally, experts consider a nondisclosure agreement reasonable when terms between employer and employee-run for not more than two years.
It Can Be A Turn-Off
High-performing staff may consider strict employee confidentiality agreements as unfair or uncouth. As a result, those uncomfortable working under such terms may consider working with lenient competitors leading to disastrous results.
Non-Disclosure Agreement for Resigned Employee
While most people appreciate the role of non-disclosure agreements in business deals and trades, some never realize their value when employees resign. If you wonder why an employee should sign a non-disclosure agreement on resignation, remember that your business secrecy needs protection at all times.
It does not matter whether someone worked for the company for years or lasted only for a couple of months. All matters related to the company business and its clients should remain confidential, even when the non-compete clause expires. In the long run, the agreement protects valuable technology, know-how, and business strategies in the present and future.
Get Help with an Employee Confidentiality Agreement
Any business owner should realize that sensitive information regarding the company can be precious to competitors. You have likely read horror stories where a competitor pays an employee off to receive top-secret details of the acquiring company.
Hopefully, this piece will help you understand the consequence of such an agreement and how it can help protect your business's confidential information against misappropriation.
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