Confidentiality is a critical component of the employer-employee relationship. Confidentiality agreements and non-competition clauses preclude a former employee from using valuable business information, like customer lists or vendor contacts, at a new place of employment. Trade secrets laws also preclude former employees from profiting on recipes or proprietary processes learned from a former employer. Familiarity with employment confidentiality laws helps employers protect their interests and helps new business owners avoid legal entanglements with prior employers.
An employment confidentiality, or non-disclosure, agreement is an agreement between an employer and employee in which, as a condition of employment, the employee agrees she will not disclose to others any confidential information she acquires regarding the employer's enterprise. An employer may also ask an independent contractor to sign a confidentiality agreement as a prerequisite condition to being engaged for contract work. The specific terms of confidentiality agreements vary depending on the type of business, but they typically contain clauses defining what information is confidential, any exemptions to the non-disclosure terms, and how long the employee must keep the information secret.
When a confidentiality agreement is a condition of employment, a current employee who breaches such an agreement may expect to lose her job. However, employers can also sue current or former employees for breach of contract. If the employer prevails in the lawsuit, the court may grant him injunctive relief -- an order telling the former employee to stop breaching the agreement -- as well as monetary damages. Some confidentiality agreements contain a liquidated damages provision, which is a clause stating what amount of monetary damages the employee will pay if the agreement is breached.
Even if you did not sign a confidentiality agreement with your former employer, you may still be subject, through trade secret laws, to legal restrictions on the use of information you were exposed to while you were employed.The Uniform Trade Secrets Act, adopted by most states, protects any information that is of value to a business, primarily because such information is not generally known to others. The employer must take reasonable steps to safeguard his trade secrets from disclosure in order to maintain the protection of trade secret laws. Violation of trade secret laws can result in injunctions and monetary damages.
Avoiding Breach of Confidentiality
A confidentiality agreement provides your former employer with a basis upon which to take you to court, causing great expense that may bring your new business to a halt or cause you to lose your new job, even if he does not ultimately prevail. Consulting an attorney prior to leaving a job which involves a confidentiality agreement can help you more fully understand your risks and obligations. Careful compliance with the literal terms of the agreement by starting your own client lists, developing your own products and avoiding use of trade secrets from your former employer will help to avoid a finding of breach of confidentiality. Consider whether your new business is really in competition with your former employer, as well as whether a team of colleagues from your former employer is joining your new venture, which may signal a high likelihood of breach of confidentiality.
Read More: Policies & Procedures of Confidentiality
- National Institute of Justice: Model Employee Confidentiality Statement
- TMS: The Uniform Trade Secrets Act
- Stoel Rives, Attorneys: A Practitioner's Guide to Confidentiality Agreements
- Iowa State University Extension: Overview of Confidentiality Agreements
- Primerus: Confidentiality Clauses and Restrictive Covenants--Be Careful What You Include in an Employment Contract
- Journal of High Technology Law: Inevitable Disclosure of Trade Secrets--Employee Mobility and Employer's Rights
- Quick MBA: Employment Law and Duties to One's Former Employer
- Tim's Missouri Employment Law: Missouri Non-Compete Agreements, Including Non-Solicitation and Confidentiality
A freelance writer since 1978 and attorney since 1981, Cindy Hill has won awards for articles on organic agriculture and wild foods, and has published widely in the areas of law, public policy, local foods and gardening. She holds a B.A. in political science from State University of New York and a Master of Environmental Law and a J.D. from Vermont Law School.