Employee Confidentiality Agreement

What is an Employee Confidentiality Agreement?

An employee confidentiality agreement is a legally binding contract between an employer and employee that restricts the employee's ability to disclose proprietary company information. These agreements protect trade secrets, business strategies, customer lists, financial data, and other sensitive information that gives a company its competitive edge.

Unlike a general NDA used between businesses, an employee confidentiality agreement is specifically designed for the employment relationship. It typically includes provisions that address the unique aspects of employment, such as the return of materials upon termination, post-employment obligations, and integration with other employment documents.

What Does a Standard Employee Confidentiality Agreement Include?

1. Definition of Confidential Information

The agreement should clearly define what constitutes "confidential information." This typically includes:

• Trade secrets: Formulas, processes, designs, or methods that derive value from being secret
• Business information: Financial data, pricing strategies, marketing plans, and business forecasts
• Customer data: Customer lists, contact information, purchasing history, and preferences
• Technical information: Software code, algorithms, product designs, and research data
• Personnel information: Salary data, performance reviews, and HR records

2. Employee Obligations

The core obligations typically include:

• Not disclosing confidential information to unauthorized parties
• Using confidential information only for job-related purposes
• Taking reasonable precautions to protect confidential information
• Reporting any suspected breaches or unauthorized access
• Returning all confidential materials upon termination

3. Duration of Obligations

Confidentiality obligations typically survive employment termination. Standard durations include:

• Trade secrets: Indefinitely, as long as the information remains a trade secret
• General confidential information: 2-5 years after employment ends
• Customer information: 1-3 years after employment ends

4. Permitted Disclosures

A well-drafted agreement will include exceptions for:

• Information that becomes publicly available (not through the employee's breach)
• Information independently developed by the employee outside of work
• Information already known to the employee before employment
• Disclosures required by law or court order
• Whistleblower protections under federal and state law

Confidentiality Agreement vs. NDA: Key Differences

What Employees Should Look For

Red Flags in Confidentiality Agreements

• Overly broad definitions: If "confidential information" includes virtually everything, the agreement may be unenforceable or unreasonably restrictive
• No exceptions: Legitimate agreements include carve-outs for public information and legal requirements
• Lifetime obligations: While trade secrets can be protected indefinitely, general information shouldn't require lifetime secrecy
• Unclear ownership: Watch for language that claims ownership of work you created before employment or outside work hours
• Missing whistleblower protections: Federal law requires these protections; their absence is a red flag

Before You Sign

1. Read the entire agreement carefully - Don't just skim; understand every provision
2. Ask questions - Request clarification on any terms you don't understand
3. Review existing obligations - Make sure the agreement doesn't conflict with obligations to prior employers
4. Consider negotiating - You may be able to narrow overly broad provisions
5. Keep a copy - Always retain a signed copy for your records

What Employers Should Include

Best Practices for Employers

• Be specific: Define confidential information with reasonable specificity rather than catchall language
• Include the DTSA notice: This is legally required and protects your remedies
• Address return of materials: Specify what must be returned and the timeline
• Consider state law: Different states have different requirements and limitations
• Provide consideration: For existing employees, additional consideration beyond continued employment may be required
• Keep it reasonable: Overly broad agreements are harder to enforce and damage employee relations

Enforcement and Remedies

When an employee breaches a confidentiality agreement, employers may pursue several remedies:

• Injunctive relief: Court orders to stop ongoing or threatened disclosure
• Monetary damages: Compensation for actual losses caused by the breach
• Attorney's fees: If provided for in the agreement or by statute
• Criminal penalties: In cases involving trade secret theft under the Economic Espionage Act

Courts consider several factors when enforcing these agreements, including whether the information was truly confidential, whether the employer took reasonable steps to protect it, and whether the restrictions are reasonable in scope and duration.

State-Specific Considerations

While confidentiality agreements are generally enforceable across all states, specific provisions may be treated differently:

• California: Enforces confidentiality agreements but scrutinizes provisions that effectively function as non-competes
• New York: Requires consideration for mid-employment agreements and applies reasonableness standards
• Texas: Requires that confidentiality provisions be ancillary to an otherwise enforceable agreement
• Illinois: Has specific notice requirements and limitations on low-wage worker agreements