Confidentiality agreements stop suppliers, business partners and employees from leaking important business information to competitors and the general public. The consequences for breaking a confidentiality agreement range from reputational damage to monetary damages, dismissal and injunction.
Confidentiality agreements, which are also called non-disclosure and secrecy agreements, are important legal tools for businesses and private citizens. Companies use confidentiality agreements to protect their products, patents and trademarks so that information regarding secret techniques and use of materials is not leaked to competitors or to the public. Citizens are provided with safeguards to prevent health care service providers from disclosing potentially damaging information under the federal Health Insurance Portability and Accountability Act. If a confidentiality agreement is breached, the consequences can be far-reaching and potentially devastating to the parties.
Lawsuit and Injunctions
If a company or citizen files a lawsuit, the legal team first files for injunctive relief from the court to prevent the violating party or entity from continuing any further efforts. This first phase is done to establish that a breach of the confidentiality agreement has taken place and to establish that the party filing the suit has experienced “irreparable harm.” This is significant because proving “irreparable harm” is the major provision upon which confidentiality agreement lawsuits are based. Most agreements include language that indicates that a violation automatically results in irreparable harm.
Loss of Business Clients and Relationships
Businesses that provide services to other businesses, known as B2B companies, often are required to sign a confidentiality agreement. Violation or breach of the agreement can result in the loss of business or prospective clients, and have devastating consequences on professional and business reputations. Sometimes the guilty party or entity can be blacklisted, or prevented from continuing to thrive and conduct business.
Termination of Employment and More
Companies involved in research and development, government work, or the marketing and advertising of products often require employees to sign some type of confidentiality agreement. That's because these companies deal in confidential information and they could lose competitive advantage if that information was shared. For everyone else, the question is whether social media and confidentiality can safely co-exist in the workplace. Employers have a reputation to uphold and they may not wish for complaints about customers, for example, to be shared on social media for fear of embarrassment and bad public relations. In all probability, the firm's social media policy will restrict what an employee can say about the company and its customers, and the policy may act as a type of confidentiality agreement even if it has another name.
These policies take many forms but the terms generally include that the company can “remedy” any breach or violation of the agreement by firing the employee, as well as pursue monetary damages. An employee breach of confidentiality sometimes can escalate and result in additional charges and consequences, such as a jail sentence.
- Fuse/Fuse/Getty Images