Protecting your interests is vital, and a confidentiality agreement may be just the document you need. But what are they and how do you use them?
It's common for small businesses to first encounter confidentiality agreements (also called non-disclosure agreements or NDA's) when they deal with other parties. Though these types of documents come in both mutual and non-mutual forms, by far the most common is the "one-way", or non-mutual confidentiality agreement.
In such an agreement, one party (the recipient) is prevented from disclosing what the other party (the discloser) reveals to them. These documents can be vital to any small business. Here is what you need to know:
What is a Confidentiality Agreement?
Basically, it's a contract where the recipient agrees to keep certain information confidential and not reveal it to anyone else. They are used in various circumstances, including when intellectual property is at issue, when a business wants to hire a contractor discreetly, or when the recipient needs certain proprietary information to do their job. Because some information is valuable, especially intellectual property, and because revealing or publicly disclosing the information can result in losing some legal protections, confidentiality agreements are often an important and necessary part of doing business.
What Do I Need to Look out for if I'm Asked to Sign a Confidentiality Agreement?
If someone hands you a confidentiality agreement and asks you to sign it, there are several things you need to do. First, and always, ask if you can have your attorney look at it. If they say 'no', that's a good sign the document may be trouble. Second, you need to read the agreement carefully, paying particular attention to the information they are restricting you from talking about. Usually, confidential material will be given to you in written form. If it isn't, you should ask for clarification about information you learn just by talking to someone. Also, make sure the agreement allows for exceptions for information you already know. You don't want to sign away confidentiality rights to information you've learned yourself.
Can I Ask Others to Sign a Confidentiality Agreement?
Yes. In fact, if you're ever in doubt whether the information you are going to tell someone has value, you can ask them to sign a confidentiality agreement. To make the agreement more palatable, you may also use a mutual or 2-party agreement, as these restrict both parties from revealing the disclosed information.
A Powerful Screening Tool
A confidentiality agreement is an excellent screening tool. After all, if a prospective employee or someone else who you are going to do business with does not want to sign one, you have to question their true intentions. With rare exception there is no-good reason why someone with good intentions would not sign one.
What are the Consequences of Violating These Agreements?
If you or another party subject to the confidentiality agreement reveals the information in a way the agreement prohibits, you can be subject to some serious repercussions. You may be sued; you could have an injunction filed against you, or other legal action. In short, signing a confidentiality agreement is not a trivial matter. Before you sign, make sure you understand the document.