A confidentiality agreement, more commonly known as a non-disclosure agreement, is a legally-binding contract between two or more parties which restricts the sharing or distribution of information to parties that are not part of the contract. The information covered by the agreement has to be clearly defined to reduce the chances of loophole exploitation. Examples of information covered by the agreement include trade secrets and information that is proprietary.
The role of a confidentiality agreement is to maintain the secrecy of information. An example of this is when two parties are considering partnering in a business. In this case, both firms would need to understand the business models of the other company. Since this information is sensitive and could compromise either company’s operations, it would be prudent to sign a confidentiality agreement to ensure that they don’t leak out this information during or after their collaboration.
Confidentiality agreements can also be used to restrict the sharing of company information by an employee. In such settings, the employees would be required to sign a confidentiality agreement as part of the documentation required to join the company.
Confidentiality agreements are therefore critical in many aspects of business, particularly if secrecy is paramount to the business’ operations. To ensure that it can be used in a court of law, the confidentiality agreement has to be thoroughly spelt out, and has to conform with federal and state law. To this end, the guidance of a business lawyer is essential in drafting such an important document.