Question: What is so important about confidentiality agreements?
Short Answer: They provide valuable and essential protection for your business.
Key Takeaways
- Confidentiality agreements protect the sensitive information of your business;
- Without them, valuable information could be shared with outside parties;
- Breaching a confidentiality agreement can have serious ramifications.
Businesses might possess a wide variety of valuable or sensitive information. Whether this information concerns business opportunities ripe for exploitation, designs or reports which are the result of substantial investment, or just sensitive personal information, it is essential to have protection against its disclosure. Confidentiality agreements prevent this information from being shared with outside parties.
Alright, so what are they?
Confidentiality agreements, also known as non-disclosure agreements (or NDA’s), are contracts which provide for the secrecy of information. The agreement outlines what information is intended to be kept secret and imposes an obligation upon parties not to disclose that information to others.
And why are they important?
Confidential information comes in a variety of forms, from sensitive personal information to trade secrets. Information such as client lists, patent designs, research reports, IP, and trade processes are all things in which businesses have likely invested large amounts of resources. Confidentiality agreements allow this information to be utilised for business purposes whilst protecting against its disclosure to third parties.
How do they work in practice?
Confidentiality agreements should be entered into at the beginning of any work involving such information. They can be the primary subject of the agreement, or simply an aspect of a broader contract (for example an employment contract, or contract for services). They should clearly identify what information is confidential and subject to the obligation of parties not to disclose such information.
A common pitfall is that people often underestimate the significance of these agreements. Breaches can have serious consequences, both personally and for the business. Most cases that make it before the courts involve injunctions – court orders which temporarily prohibit particular actions (such as disclosure/use of information). Where a party indicates an intention to breach a confidentiality agreement, businesses go to great expense to protect themselves. Ultimately this cost will be borne by the offending party.
Where confidential information is disclosed, it can lead to substantial compensation claims. If the information is sensitive enough to warrant protection, it is likely to be very damaging when shared. Breaching a confidentiality agreement can leave you on the hook for whatever damage was caused by the breach. In serious cases, especially after considering legal costs, this can be worth hundreds of thousands of dollars (as seen in SAI v Johnston).
Without an effective confidentiality agreement to protect your sensitive information, securing compensation can be extremely difficult.