Protecting your sensitive company information is critical. This article will explain how a confidentiality statement in your contract can protect vital information
Companies deal with and process confidential information daily—from technical processes and designs to the identity of the institution's highly important clients.
The leakage of this highly confidential information spells danger to the company’s finances and its integrity as a business institution. It is critical for the organization to have some protection against data leakage, particularly those considered “highly confidential.”
A confidentiality statement is one legal instrument that you can use to protect your organization’s interests. This always comes in handy, particularly in drafting and finalizing a contract.
While confidentiality statements commonly appear at the bottom of the contract or agreement or just a section of the document, this serves as a powerful protection. It bars the parties in the agreement from leaking any critical information to entities—be it a person or another business institution—not connected or privy to the said agreement, particularly business competitors.
A confidentiality statement is a declaration that some information cannot be shared due to its sensitivity. It tells one of the parties involved not to share specific information. There will be legal consequences when this portion of the contract or agreement is violated.
The terms “confidentiality statement” and “confidentiality agreement” are commonly used interchangeably. A confidentiality clause is the same as a confidentiality statement, which appears as one section of the contract or agreement that must be signed.
Meanwhile, some legal, government, and corporate institutions tend to use the word “confidentiality agreement” in referring to the same legal instrument, which can be issued and signed as a separate document.
A non-disclosure agreement or NDA is a classic example of a confidentiality agreement. This is commonly used in employee contracts and other similar agreements.
An NDA orders the signatory not to disclose any information stated in the contract that is considered confidential or sensitive. This includes processes, lists of essential clients, and copyrighted materials that the corporation or institution uses in the conduct of its operations.
The disclosure of such sensitive and important information can have legal consequences, such as jail time or fines.
A confidentiality statement is used to inform the relevant parties about the sensitive nature of the information contained in a document. The statement provides a clear understanding to the receiving party that all information in the agreement should not be shared with unauthorized individuals or entities.
By including a confidentiality clause in a document like an employment contract, the issuing party seeks to establish a legal and ethical obligation for the recipient to maintain the confidentiality of the information. This includes protecting personal information, trade secrets, copyrighted processes, proprietary data, and other confidential matters.
The confidentiality clause gives the receiving party the possible legal consequences in case of unauthorized disclosure or sale of sensitive and confidential information.
A well-written confidentiality clause can promote trust among agreeing parties, safeguard sensitive information, and provide a basis for legal remedy if confidentiality is compromised.
Confidentiality statements can be customized depending on the nature of the agreement.
A standard template is sometimes used to create statements or clauses in a document. In some instances, company lawyers prepare a separate confidentiality statement and NDA where they can identify which information is considered confidential. This is to avoid confusion and unnecessary legal repercussions on the side of the issuing party.
A confidentiality statement has the following elements:
- The name of the individuals or parties involved in the agreement
- The items or information that should not disclosed or shared with third-party entities
- The lifespan of such an agreement
- The duties and responsibilities of the recipient of such confidential information
Confidentiality agreements usually appear as an employment or service contract clause in a workplace setting. In the drafting of the contract, the confidentiality clause must appear as a section of the document. The wording should be clear for the signee to understand their legal obligation to safeguard and keep any sensitive information shared with them by the company. And any violation of the said agreement would have legal implications.
Aside from the details that should be kept confidential, it is crucial to let the other party know the lifespan of the agreement. Should it be for the duration of the contract, or beyond that?
Here are some qualities of a well-drafted confidentiality statement or agreement:
Clarity and precision:
The statement should accurately state what the confidential information is. This is critical since ambiguity in the statement can lead to legal ramifications.
Purpose and scope:
In drafting the statement, make sure that it outlines the exact purpose for sharing the information and the context in which it can be used. This prevents any unauthorized use of the shared confidential information.
It is critical that your NDA or confidentiality agreement has a defined timeframe for how long the confidentiality obligations will last. This will give both parties a complete and clear understanding of how long the information should be kept confidential.
Parties' obligations are clearly defined:
In drafting the statement, make sure that you clearly outline the responsibilities of both the disclosing and receiving parties regarding handling, protecting, and non-disclosing confidential information.
Explicitly state permitted disclosures:
If you plan to draft a separate NDA from the contract or service agreement, the document should include provisions that allow for specific circumstances where disclosure might be required, such as legal obligations or certain authorized parties.
While confidentiality agreements are binding, there are legal circumstances that allow complete and unbarred disclosure of information that is considered highly confidential. We’ll discuss it at length in the next section of this article.
Penalties for Breach:
It is vital to outline the possible consequences of a breach. This should include possible legal actions, damages, and remedies against unauthorized sharing, distribution, or selling of the confidential information.
Clarity regarding the governing law and jurisdiction:
In writing the NDA or the statement, specify the governing law under which the agreement will be interpreted and the area of jurisdiction where legal actions can be filed.
Remember that each State, province, or country has specific laws and statutes that govern data privacy and breach. Consult a lawyer who is an expert in laws of obligations and contracts in drafting the document. This is to ensure that all legal guidelines are met.
Statement of severability:
It is equally important to include a severability statement stating that if a portion of the agreement is considered unenforceable, the rest of the contract or agreement remains valid.
It is also crucial to ensure that the NDA is the sole legal instrument that binds the parties involved. There should be no verbal promises or side agreements. This would prevent any legal repercussions in the future.
Clear information about the signatories:
Accurate and complete information about the signing parties is needed to avoid confusion about their identities.
The document should also reflect the mutual exchange of value or consideration between the parties signing the agreement. This makes the agreement easier to enforce and adhere to.
Confidentiality of the agreement itself:
The document should also specify that an agreement exists between the parties and is to be kept confidential.
A confidentiality statement or an NDA typically protects a wide range of sensitive information, including:
- customer lists
- financial data
- intellectual property
- marketing strategies
- product designs
- proprietary business information
- technical data
- trade secrets
- other information that is deemed sensitive and confidential
This legal instrument is designed to avoid unauthorized exposure and use of sensitive and confidential information by individuals or groups that have access to these kinds of information.
The statement also provides the receiving party's ethical, moral, and legal obligations, as sharing the information warrants legal consequences.
The exact scope of protected information must be clearly defined. This means that the sharing party should clearly outline what items should fall under a specific category of classified information and establish the duties and obligations of the signing parties to maintain its secrecy.
As a legal instrument, NDAs, non-compete agreements, and confidentiality statements have legal limitations. These agreements may not be enforced, particularly if they can jeopardize public interests.
Some businesses often use this legal instrument as a “gag order” for employees and business partners to prevent them from disclosing information that is considered illegal and dangerous.
In most countries, whistleblowers are protected by law for their safety. This is when there is a possible conflict between the provisions of a confidentiality agreement and whistleblower protection provided by a state or a country.
As you can see, whistleblower protection laws and non-disclosure of confidential information (as stipulated in a contract or a separate NDA) have a complex relationship. These laws aim to protect individuals who expose wrongdoing, safety violations, or illegal activities within organizations.
On the other hand, confidentiality statements and NDAs aim to protect the confidentiality of sensitive information. There are cases where some businesses and institutions include clauses in their NDAs or secret agreements, which seemingly restrict whistleblowing.
Nevertheless, many countries and states like Canada, the US, and the UK have legislation that supersedes NDAs. These laws permit whistleblowers to disclose sensitive and private information for public interest without facing any legal consequences, especially when a competent court orders the disclosure.
These laws were enacted to balance protecting sensitive information without discounting accountability and transparency.
A confidentiality statement can offer some degree of protection for companies, especially when included in employment contracts. It can help prevent employees and business partners from disclosing sensitive information to the public or the media. A confidentiality statement helps protect trade secrets, essential business contacts and clients, and other vital information.
However, confidentiality statements are not foolproof. Due diligence is important, especially when drafting employee contracts and agreements. Companies should always consult a lawyer when drafting confidentiality statements, agreements, or NDAs.
We hope that this article served as a good refresher on confidentiality statements. Would you have any tips or important points to share on this topic? Let us know in the comments below.