Pssst…can you keep a secret? In business, confidentiality is imperative and a breach of a confidentiality agreement can be costly.
Confidentiality may seem straightforward, but you must consider a lot of things to ensure you have terms that’ll work for your business. When it comes to your own contract, having the right terms is just the first step but it goes a long way towards protecting your business.
When I discuss confidentiality provisions in this episode, I’m talking about them as part of a bigger agreement. So, let’s dive in! First, I’ll go over the most common pieces of a confidentiality provision. Then, I’ll talk about what you can do with the information you receive and wrap up the show with a couple of action steps.
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In this episode:
[02:42] – When first looking at a confidentiality provision, you need to know which party is agreeing to keep information confidential.
[03:47] – Danielle gives a quick tip for protecting yourself when negotiating with another party.
[04:04] – How do you define confidential information? This is one of the most important pieces of the provision.
[05:19] – Some agreements may consider everything about the agreement to be private, including its very existence.
[05:58] – Confidentiality is inherent to some relationships. As a lawyer, it’s built into everything Danielle does at her firm.
[06:24] – In this type of confidentiality clause, carefully review what’s protected.
[07:18] – What types of documents are covered? This is the last thing you want to define.
[08:30] – Danielle goes over what you can do with confidential information.
[09:05] – Consider with whom on your team you can share confidential information.
[09:30] – Usually, an agreement will limit how you and others can use private information.
[10:26] – Do you have to store the information in a certain way to comply with the confidentiality provisions?
[10:57] – What happens if something confidential is exposed in violation of the agreement?
[11:25] – Ensure you know how long the provision will last and review what needs to be done after the agreement’s conclusion.
[12:17] – Danielle winds down the show with these action steps.
Links & Resources:
Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.
Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.
If you've ever felt legal was too scary, too overwhelming, too complicated, or just plain incomprehensible, you're not alone. The Simplifying Legal podcast was created to help.
In each episode, we’ll do a deep dive into a legal topic and give you concrete next steps so you can apply it to your business.
My goal is for you to walk away from each episode thinking, oh, that was easier than I thought it would be.
Let’s get started.
Hey there, I’m Danielle. Welcome to episode 10 of Simplifying Legal. In Episode 8, we kicked off a series on contracts. In the last episode, we talked all about payment provisions. Today, we’re looking at confidentiality in contracts.
I think doing a deep dive into confidentiality is important because you need to understand what you’re signing. And, if we’re talking about your contract, you want to make sure you have the right terms to protect your business. Confidentiality seems straightforward, but there can be a lot of things to consider to make sure you have terms that work for your business.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
Now let’s talk a bit more about the confidentiality terms in your contracts.
First and foremost, when I discuss confidentiality provisions in this episode, these are typically within a bigger agreement. We’ll discuss stand-alone nondisclosure agreements, or NDAs in a future episode. If you are a healthcare professional and you are a covered entity under HIPAA, your handling of confidential information will be governed by HIPAA, and may differ from what I’ll discuss in this episode. With that in mind, let’s get started.
Confidentiality Provisions within Your Contracts
First, we’re going to discuss the most common pieces of a confidentiality provision, then we will discuss what you can do with the confidential information you receive, and we’ll wrap up the episode with action steps.
When you first look at a confidentiality provision in an agreement, you need to know which party is agreeing to keep information confidential. Many agreements are mutual, which means that both parties may disclose confidential information and they may receive it. In a confidentiality clause like this, it will typically refer to the disclosing party and the receiving party, which will depend on who is disclosing the confidential information.
Some agreements only bind one party. This might happen when only one party will be disclosing confidential information. For example, if you own a small business and you hire a service provider, like a virtual assistant, the VA may not be disclosing confidential business information with you. You, however, will be letting that person into your business and will want to ensure that anything confidential that you disclose is protected. If that’s the case, the only disclosing party would be you and you may not need mutual confidentiality protection. It may be sufficient to ensure that only your confidential information is protected.
A quick tip for negotiation – if you receive an agreement that only protects disclosure from one side, but both parties will be disclosing confidential information, ask to make it mutual. This way, both parties are protected when disclosing their respective confidential information.
Defining Confidential Information
Next, let’s talk about one of the most important pieces of any confidentiality provision: How do you define confidential information. Usually, an agreement will say something like, the parties agree not to disclose any confidential information.
This type of provision is fine, but it’s also a bit vague. How do you know what information is confidential? When you say confidential information, you also need to define what that means. You never want to assume that the other party knows what you consider to be confidential and vice versa.
Labeling Confidential Information in Your Agreement
Some agreements will require that each piece of information that you consider confidential will need to be labeled. For example, it might need to be labeled as “confidential’ or “confidential information” or some phrasing dictated by the agreement.
- If you are using this type of confidentiality language in your agreement, it’s really important to remember to label things accordingly.
- Also, make sure that anyone on your team who might be disclosing confidential information also knows this.
- I’m not a huge fan of clauses like this because it leaves too much room for error.
Some agreements will consider absolutely everything about the agreement as confidential, including that the agreement exists or that the parties are working together.
- If, for example, you are a subcontractor and you are not allowed to disclose you work for a particular company, be sure that you do not use them as a reference or list them on LinkedIn or in a portfolio without express permission from the company.
- If you were to do something like that, they could potentially allege that you’ve breached the confidentiality provision because the relationship itself was protected by confidentiality.
Additionally, there are some relationships where confidentiality is inherent in the relationship. As a lawyer, confidentiality is built into absolutely everything I do at my law firm. It’s a key part of my rules of professional responsibility. In my engagement agreements, I still let my clients know that everything they disclose will be kept confidential, but it’s also a fundamental part of the relationship itself.
Protection of Certain Information
Next, confidential information can be specifically defined in an agreement to protect certain types of information. Here, it’s important to carefully review what is protected. Common examples are business plans, customer lists, logins, or methodologies.
If you are creating a confidentiality clause, consider what areas of your business you want to keep confidential. What might be harmful if it was disclosed to the public?
- This might include things like proprietary business data or methodologies, or it might be preferential pricing that you’ve offered to a client.
- You can also give examples if you think a definition might not be understood, which might be, “Confidential information includes all business methodologies, including the XYZ Program and ABC Method.”
Confidential Documents Under Agreement
Finally, what type of documents are covered? Most agreements will state that any type of communication can be confidential. For example, a phrase I frequently use in agreements is “Confidential information is not limited to a specific medium and can be oral, written, electronic, or physical in format.”
Usually, this is everything you’ll need to determine what is confidential information under the agreement. As always, if you have a special situation or you aren’t sure how to structure this type of provision, this is when you will want to talk with your attorney.
Next, depending upon what the agreement is for, you may want to make sure confidential information of your clients is covered. For example, if I hire someone for my team, preserving confidentiality is critical to that role. My confidentiality provision for that team member might state what business information of mine is protected, but then I may further state that any information of my clients is also covered as confidential information.
Usage of Confidential Information
Now that you know what is considered confidential under the agreement, what can you do with the confidential information?
- First, are you allowed to discuss all information with people on the company’s team? For example, a company may not want you, as a client, to discuss the price you are paying for services. So, be careful as to whom on their team you can discuss certain things since not every team member has access to the same level of internal information.
- Next, who on your team can you share confidential information with? Many agreements state that you may only share information with those team members who need to know as part of their job functions. If you’re sharing confidential information with a team member, it’s important to ensure that they’re fully aware of the confidentiality requirements as you would be responsible for their breach too.
- Next, how can you use the information? Usually, an agreement will limit how confidential information can be used.
- For example, if you are a service provider, you may only be permitted to use any confidential information to perform the services defined in the agreement.
- If you are reviewing a confidentiality provision in an agreement for your business, consider how you want the other party to be able to use the information. Make sure you get specific if you want to restrict the usage. Your confidentiality provision can determine both disclosure and usage of what you disclose.
- There may be times when you are providing confidential information as background discussion for a bigger project.
- In that circumstance, you may want to advise that this is simply for their knowledge of how things have run in the past, but you may not want them to use it for anything else, other than providing context.
- Next, do you have to store the information a certain way to respect confidentiality? Do you need to restrict access to the information from team members? Do you need to store it differently than other information, like in a more secure software portal?
- This can be especially important for physical copies of confidential information. Where should it be stored and what can you do with it?
Violation of Confidentiality Agreement
Next, consider what happens if something confidential is disclosed in violation of the agreement.
- Some confidentiality provisions will provide specific examples when you would not be responsible for the disclosure. For example, if the information later became public by other means, you wouldn’t be responsible. Be sure to review those carefully so you can understand how the information might be disclosed.
- Also, make sure you know how long the confidentiality provision lasts. Some are shorter, but others are for a longer period of time, like 7-10 years, and others are also indefinite.
Termination of Agreement
And, finally, review what needs to be done with the confidential information once the agreement is concluded. Usually, the agreement will state that the confidentiality provisions will survive any termination.
So, remember, ending the contract does not mean you can disclose the information you learned. If you received physical copies of confidential information, you may also need to return them. Be mindful of any requirements regarding how to treat the information once the contract ends.
This wraps up our discussion of what is typically included and how to interpret a confidentiality provision. Now, let’s review today’s action steps.
- In your contracts, what does your confidentiality provision protect? Should the definition of confidential information be expanded to include any other types of information? Confidentiality provisions are a key way to protect your business, so make sure you update your agreement if anything is missing.
- If you’ve ever had a confidentiality provision breached, what happened? Is something missing in the agreement that could have helped you prevent the disclosure? If so, that is definitely time to make an update.
- Have you reviewed the confidentiality language for the contracts you’ve entered in the past? Are you aware of what you can and can’t disclose? Have you followed the provisions? Have you handled the information in accordance with the agreement?
- If you have team members, make sure they understand their confidentiality responsibilities. Both for your confidential information and for the information that they may learn about your clients.
This wraps up our discussion on confidentiality terms in contracts. I hope you’ll join me for our next episode. We’re continuing the discussion on contracts and we’ll dive into how to end an agreement.
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