Small Business Confidentiality Agreement
Small businesses can be particularly vulnerable to breaches of confidentiality, because they often lack the resources to obtain worldwide protection of their intellectual property or to defend their interests in court. For this reason, a small business should enter into a written confidentiality agreement every time it shares business secrets with a third party, including one of its own employees.
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Scope of Protection
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When drafting a confidentiality agreement, it is important to have a clear idea of exactly what information you need to protect. If your language is too specific, you may miss something important and leave a dangerous loophole. If your language is too broad, it may leave the other party enough room to ignore your true intentions without penalty. Confidential information may include trade secrets, client lists, business strategies, sales figures and third-party proprietary information. It should not include information that has already been made public such as financial statements, registered copyrights or patented designs.
Intra-Company Disclosure
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Many companies institute a system for the necessary release of confidential information among employees of the company. There may be no need for the engineering department to have access to company sales figures or expansion strategies, for example, and no need for the accounting department to have access to unpatented designs. A confidentiality agreement might specify that information is to be shared on a "need to know" basis, and require specific authorizations as a condition for disclosure. It might also require that all copies of confidential information recorded in any tangible media be returned after use to a centralized company location, and that all confidential information be clearly labeled confidential.
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Use Restrictions
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Two types of disclosure can damage a company -- direct and indirect. Direct disclosure occurs when confidential information is provided to an unauthorized party or made publicly available, such as on the Internet. Indirect disclosure occurs when an authorized recipient uses it for private gain, such as by incorporating a copyrighted algorithm into new software and using it to compete with the company. A confidentiality agreement should strictly prohibit recipients from using the information for private gain, even if no direct disclosure occurs.
Non-Competition Clauses
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Employees who receive confidential information are in a position to damage the company if they later work for a competitor and use the information to benefit the competitor. In such a situation, it may be difficult for the company to know whether or not its confidential information is being misused. Many companies handle this problem by requiring employees to refrain from working for the company's local competitors for a certain time after leaving the company. Courts carefully scrutinize non-competition clauses, however, and will strike down clauses that contain broad restrictions. Check the law of your state to determine what restrictions are likely to be upheld.
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References
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