Confidentiality Agreement: Definition, Purpose, and Elements

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What Is a Confidentiality Agreement?

A confidentiality agreement is a legal agreement that binds one or more parties to non-disclosure of confidential or proprietary information. A confidentiality agreement is often used in situations wherein sensitive corporate information or proprietary knowledge is not to be made available to the general public or competitors. A non-disclosure agreement (NDA) is a particular type of confidentiality agreement.

A confidentiality agreement may be contrasted with a waiver of confidentiality, whereby parties involved give up guarantees of confidentiality.

Key Takeaways

• A confidentiality agreement is a legal contract or clause that is used to protect the owner's proprietary or sensitive information from disclosure by others.
• Confidentiality agreements such as non-disclosure agreements (NDAs) are used to keep valuable ideas pertaining to new businesses, inventions, intellectual property, or proprietary processes from reaching the public or competitors.
• Confidentiality is also required when dealing with deals such as mergers and acquisitions, which could lead to insider trading or market manipulation if revealed before it is made public.

How a Confidentiality Agreement Works

A confidentiality agreement is a standard written agreement that is used to protect the owner of an invention or idea for a new business. It is also an important document between two companies that are contemplating a merger or a commercial transaction that must be withheld from public knowledge.

In the workplace, any individual who has access to sensitive information (an employee or a contractor for a firm) is often required to sign a confidentiality agreement to guard against the disclosure of competitive information that may harm the firm. The agreement is unilateral (one party signs), bilateral (both sign), or multilateral if many parties will have access to sensitive information.

Violating a confidentiality agreement can subject that party to potential fines or other legal and reputational repercussions.

Main Elements of a Confidentiality Agreement

Confidentiality agreements can be customized depending on the particulars of the situation, but certain boilerplate sections will often apply. The agreement will name the party or parties involved, the items subject to non-disclosure, the duration of the agreement, and the obligations of the recipient(s) of confidential information.

The document will clarify that exclusions to the agreement include information that is:

• Already known by the person or persons who are signing the agreement
• Already in the public realm
• Easily learned or could be learned independently outside the company that drafted the agreement

The agreement will also define instances of permissible disclosure (e.g., to law enforcement) and disclosure exceptions.

The "exclusions from confidential information" section excludes certain categories of information as non-confidential, which protects the receiving party of this information from having to protect it in the future. The "obligation of the receiving party" section details what certain parties can do with the information provided by the disclosing party.

The "time periods involved" and "miscellaneous" sections use straightforward language to cover the terms of the agreement and any other matters deemed important. Those matters may include details such as which state's law to apply to the agreement and which party pays attorney fees in the case of a dispute.

Is a Confidentiality Agreement Legally Enforceable?

Yes, a confidentiality agreement is legally enforceable if it has been signed by all parties and has been drawn up correctly from a legal standpoint. It must be detailed enough to be enforced, such as stating what information must stay private, between what parties, and for how long. If it is too broad then it may not be enforceable.

What Is an Example of a Simple Confidentiality Agreement?

A simple confidentiality agreement may state language such as this: "(1) I confirm that I will not share this proprietary information with any individual within or outside of the company that has not been approved to view the information, (2) I will not publish this information on any platform, and (3) I will not share this information without prior legal writing that authorizes me to do so. The term limit of the confidentiality agreement is six months."

Can I Break a Confidentiality Agreement?

In most cases, you cannot break a confidentiality agreement as they are legally enforceable. It will depend on the language of the agreement. If you break it, there may be legal ramifications such as financial penalties. Before breaking a confidentiality agreement, discuss it with the other parties in the agreement and consult a lawyer.

The Bottom Line

The purpose of a confidentiality agreement is to prevent sensitive information from being shared with the public or other parties, such as third-party competitors. It's used in a variety of situations, such as mergers and acquisitions, new partnerships, and basically anywhere new ideas or proprietary information is shared.

A confidentiality agreement details what information must stay private and for how long. Breaking a confidentiality agreement can result in legal ramifications.

1. Thomson Reuters. "NDAs and Confidentiality Agreements: What You Need to Know."
2. Bloomberg Law. "Confidentiality and Nondisclosure Agreements Explained."

Term describes an asset, liability or security's time over which conditions of a contract will be carried out, and can also be a provision to a contract.

Mandatory binding arbitration requires parties to resolve disputes before an arbitrator rather than through the court system. Individuals may be better served by a trial.

A joint endorsement is often required on a check presented for deposit or cashing that has been made out to two or more individuals.

A grantee is the recipient of a grant, scholarship, or some type of property. In real estate, the grantee is the one taking title to a purchased property.

A special purpose acquisition company (SPAC) is a publicly traded company created to acquire or merge with an existing company.

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