Five Reasons Employers Should Implement Employee Confidentiality Agreements


Most businesses have and use a significant amount of confidential information. Such information can range from customer lists to proprietary manufacturing processes and formulas, which give a business a competitive advantage in its market.  

Although common law principles and statutes, such as the state Uniform Trade Secrets Act (UTSA) and the federal Defend Trade Secrets Act (DTSA), provide protection of a business's confidential information, most businesses would greatly benefit by implementing employee confidentiality agreements, yet few do so.  

Five reasons businesses should consider implementing employee confidentiality agreements are highlighted below.

1.  Confidentiality Agreements Provide Notice to Employees of the Confidential Nature of Certain Information

An employee confidentiality agreement puts employees on notice as to what information an employer deems confidential. This aids in preventing inadvertent disclosure of a business's confidential information, due to an employee's ignorance of the confidential nature of the employer's information.

2.  Confidentiality Agreements Establish Clear Policies for the Protection and Use of Confidential Information

 Not only does an employee confidentiality agreement put employees on notice of the nature of confidential information, but it also provides employees with clear rules for how to use and protect such information.  A well-drafted employee confidentiality agreement will further protect confidential information by containing provisions regarding the return of the employer's confidential information at the end of an employee's employment.

3.  Confidentiality Agreements Deter Employee Theft of Confidential Information

The existence of a contractual obligation prohibiting the disclosure of employer confidential information (and the possible legal consequences of breaching that obligation) has a deterrent effect on an employee's possible misappropriation of such information. Additionally, employee confidentiality agreements typically contain language providing that if an employee breaches the agreement, the employee is liable to reimburse the employer for attorneys' fees incurred in enforcing the agreement, further deterring wrongful conduct.  

4.  Confidentiality Agreements Aid in the Enforcement of an Employer's Rights in the Event of Misappropriation

In any dispute concerning the misappropriation or theft of confidential information, the question typically arises as to what efforts an employer undertook to protect the information at issue. Implementation of employee confidentiality agreements shows that an employer considered the information at issue to be confidential and took steps to protect the confidential nature of that information.

Additionally, the DTSA requires that employers provide employees with certain disclosures in order to obtain the full relief available under the DTSA.  Without the required disclosures, an employer cannot obtain the exemplary damages (i.e. the award of two times the actual damages) and attorney fee shifting that might be otherwise be available under the DTSA.  A well-drafted employee confidentiality agreement will contain the required disclosures in order to preserve an employer's full range of potential damages.

5.  Confidentiality Agreements Can Include A Non-Solicitation Provision 

Certain businesses, such as service businesses, should consider including language in their employee confidentiality agreements prohibiting a departing employee from soliciting other employees, customers, or both.  A non-solicitation provisions is much less burdensome on employees, and thus easier to enforce, than a non-compete provision, which prohibits a former employee from working with or as a competitor of the former employer.

Employee confidentiality agreements can be a crucial safeguard in protecting a business's competitive advantage and goodwill, yet is one which many businesses overlook. Contact us at (201) 345-5412 or you have questions about implementing employee confidentiality agreements for your business.