If your company plans to hire an employee who will have access to confidential or proprietary company information, an employee confidentiality agreement can help you achieve that goal.
Employee confidentiality agreements, also known as non-disclosure agreements, prohibit employees from disclosing certain private information they will have access to during the course of their employment. An employee confidentiality agreement can be included within a broad employment contract, or in the form of a standalone NDA.
However, they need to comply with federal and state laws. Here’s what you should know, including how to create your own with SixFifty.
What is an employee confidentiality agreement?
It’s a contract between parties. This agreement protects one or more parties’ confidential information from being disclosed to unauthorized third parties. In the employment setting, this is typically an employee agreeing not to disclose confidential company information.
The type of information to be protected varies, but often includes information or assets including:
- Contracts with other companies
- Customer or prospect lists
- Financial information
- Intellectual property
- Marketing or business plans
- Product prototypes
- Trade secrets
The confidentiality agreement should define the protected assets, while avoiding such broad definitions that encompass non-confidential information like information the employee already knew at the time of signing, or information which was publicly known or available at the time of disclosure.
The agreement must protect a “legitimate business purpose,” and should be limited only to those employees who will come into contact with confidential information. For example, you wouldn’t ask a retail cashier to sign an employee confidentiality agreement to protect your product prototypes—but it’s fair to ask your product designers and developers to do so.
There are other limitations as to what can be protected, both on the federal and state levels. Congress recently passed the Speak Out Act, which renders unenforceable any confidentiality agreements attempting to bar employees from disclosing information about workplace sexual harassment and sexual assault. That is, you can protect your company’s private information, but you can’t use it to prevent them from talking about sexual misconduct they experienced while on the job.
Some states are following suit, barring employee NDAs which seek to limit employees from speaking out against other types of unlawful behavior. It’s crucial that your employee confidentiality agreements comply with all applicable state and federal laws, or they could be deemed unenforceable.
Understanding an employment confidentiality agreement
Employee confidentiality agreements may be subject to further limitations, depending on jurisdiction. Many states set time and/or geographic limits on what can be disclosed and when. In other words, it won’t protect your business forever. They typically cover the time period during employment, and often months afterward.
If your employee breaches the agreement and discloses confidential information to an unauthorized party, you will have legal recourse to sue. The penalties to a confidentiality agreement are usually monetary, although the parties can agree to other terms as desired.
Why do companies require an employee to sign a confidentiality agreement?
The main reason companies require employee NDAs is to protect certain private information which, if disclosed, could harm their business in one or more ways. For example, if your restaurant chain has a secret recipe, the ingredients, measurements, and methods could be protected against third-party disclosure. Otherwise, individuals and other restaurants could use that proprietary recipe to compete with yours.
Furthermore, confidentiality agreements telegraph the seriousness of disclosure to employees. The existence of the agreement and agreed-upon penalties encourages employees to be very careful about what they say to others—even fellow employees who don’t have access to the confidential information.
How to create an employee confidentiality agreement with SixFifty
Employee confidentiality agreements must adhere to all applicable state and federal laws—not just the state in which your company is headquartered, but the states in which affected employees live and work. Depending on the size of your company, researching the intricacies of state employment law can be burdensome.
Instead of doing the research and drafting yourself or with the help of an attorney, let SixFifty do the heavy lifting. Our state-specific employment tools do the time-consuming and expensive research and writing for you. All you have to do is answer some questions about your company and download the customized employee confidentiality agreement. It’s a great way to save time and money on important legal documents, while still getting a legal document customized to your business and applicable laws.
Want to find out how it all works? Schedule a free product demo today!