A Guide to Confidentiality Agreements

That information could be sensitive, private or valuable. The confidentiality agreement should clearly state details including who the parties are, their key obligations, and the consequences of non-compliance with the agreement.

Such agreements are frequently used in sale negotiations, in partnerships and joint ventures, in employment contracts, and in the engagement of external consultants.

A confidentiality clause may be inserted in a contract instead of having a stand-alone agreement.

What is confidential information?

The definition of confidential information is broad.

It includes ideas, plans, trade secrets, technology, client lists, notes, software codes, techniques and reports – generally any commercially valuable information.

Exceptions

Information is not considered confidential if, for example;

• it is in the public domain;
• it is information received from a third party who was entitled to disclose it; or
• the law requires it to be disclosed.

Why use a confidentiality agreement?

A confidentiality agreement creates contractual obligations between the parties and prevents the sharing of confidential and/or sensitive information. The agreement should define:

• the parties;
• the type and scope of the information that is considered confidential;
• approved use and disclosure of the information;
• the parties’ obligations after the agreement ends (such as the destruction of documents); and
• remedies for breach of the agreement.

The confidentiality requirement may be one way or mutual.

Examples of how a confidentiality agreement protects a party

New product or process:

A product or process is invented, and the novelty or newness of the product or process is protected until a patent is granted

New design:

A new design is to be applied to a product, and the novelty or newness of the design is protected until the design is registered.

Trade secrets:

An employee is prohibited from using trade secrets to benefit themselves or their next employer. Likewise, a contractor or consultant may not use trade secrets for their own benefit.

What should be in a confidentiality agreement?

A confidentiality agreement should include:

• the correct legal names of the parties;
• the address of each party;
• if the party is a company, its ACN;
• a definition of “confidential information”; and
• a clearly expressed obligation that the confidential information must not be disclosed, unless it is disclosed for a specified purpose or under a legal obligation;

It may also include:

• a time period for which the agreement applies;
• a requirement for one party to notify the other party of any misuse of confidential information; and
• a requirement for the return or deletion of any confidential information received in error.

Breaches of confidentiality agreements

To establish a breach of confidence in relation to information, four elements must be satisfied:

1. there must be an obligation that the information be kept confidential;
2. the information had the necessary quality of being confidential;
3. the use and/or disclosure of the information was not authorised in the circumstances; and
4. the use and/or disclosure of the information resulted in a non-disclosing party suffering damages.

Remedies for a breach

The usual remedy for breach is an injunction to prevent further disclosure or to prevent the recipient from taking advantage of the information unfairly; as well as damages for any loss incurred.

The discloser should act quickly to restrain the breach.

Confidentiality in a settlement agreement

A settlement agreement commonly contains a confidentiality clause that relates to information a person could access during their tenure in a particular role (such as an employee or director).

The terms may protect confidential information in, for example, the negotiations or behaviour of a party leading to the settlement, or the terms of the agreement.

When you need help

Gibbs Wright Litigation Lawyers can help you negotiate and draft a confidentiality agreement that is both effective and enforceable.

Contact us today for a free and confidential consultation about your legal rights and options.