11th December 2019
Contents
11th December 2019
A Confidentiality Agreement is a common legal document in Australia. If you are involved in business in Australia, whether as an employee, a partner, a service provider, or a business owner, then you are likely to come across confidentiality agreements quite frequently.
A Confidentiality Agreement is an agreement (in other words, a contract) between two parties, to keep information confidential. It identifies which information is being shared, clarifies how that information may be used by the party that is receiving it, as well as identifying any penalties for breach of confidentiality.
When we talk about keeping information confidential, we mean keeping it secret, and only using it for its approved purposes. For example, an employer might share certain information with its employees (such as a restaurant sharing a secret recipe with its kitchen staff). However, the employer might want to make sure that those employees do not share that information with their friends, family, or anyone else outside of the employer's kitchen. Therefore this secret recipe is confidential information, and the employer might want to have its kitchen staff sign a Confidentiality Agreement to protect it.
A Confidentiality Agreement is a useful document in many business situations. It enables parties to reveal information with commercial value that they might otherwise keep secret, so that commercial endeavours or negotiations can continue openly and honestly.
A Confidentiality Agreement can be helpful in many different business situations, including:
(a) where a company is engaging a new employee (for example, under an Employment Agreement) or contractor (for example, under a Service Agreement) and that employee or contractor will have access to secret information, trade secrets or other valuable commercial information of the company;
(b) where two or more parties are investigating the possibility of an investment or business sale agreement with each other (for example, under a Business Sale Agreement), and those two or more parties wish to discuss commercially sensitive information;
(c) where a new start-up or inventor has an idea it wishes to discuss with another party to test the possibility of an investment or partnership (as might happen under a Joint Venture Agreement).
(d) where two or more parties are considering going into partnership together (for example, under a Partnership Agreement), but those two or more parties want to review each other's financial information first.
A Confidentiality Agreement, if signed properly by all parties, constitutes a binding legal agreement between the parties.
Under the agreement, the confidential information is described, so that it is clear what is being protected under the agreement (and what is not). The party or parties that are going to receive confidential information agree that in return for receiving that information, they will keep the information confidential. The agreement usually also provides details about how the receiving party can use the information, and what they must do to keep the information confidential.
The agreement also makes the receiving party (ie the party which receives the information) legally responsible for any losses that the disclosing party (ie the party that discloses the information) incurs as a result of any breach of confidentiality. For example, if the receiving party misuses the confidential information, and this costs the disclosing party financially (such as by giving their business competitors an advantage), the receiving party may be required to compensate the dislosing party to cover these losses.
Generally, there is not a lot of difference between a Confidentiality Agreement and a Non Disclosure Agreement or NDA. They both allow parties to protect certain confidential information. The name of a particular document does not usually change its legal effect.
That said, it is common in Australia for Confidentiality Agreements to be somewhat longer and more in depth than NDAs. They may provide stronger protection, but may also be less user friendly, particularly in fast paced business or startup environments.
For example, when a high degree of secrecy is required or when a lot of sensitive information is being shared (such as between a business and its employee), then the parties may choose to use a confidentiality agreement.
When a party needs a quick and easy solution, for example, a one or two page document to hand out before pitching a startup idea, then an NDA may be more appropriate. If a 10 page Confidentiality Agreement is presented in this situation, then it may be difficult to get anyone to sign it.
Our Confidentiality Agreement provides both options. Depending on how our questions are answered, the final document may be longer and more in depth (which is typical of a Confidentiality Agreement) or it may be shorter and more user friendly (which is typical of an NDA).
Throughout this guide, we use the term "Confidentiality Agreement" but we are really referring to both documents.
A one way Confidentiality Agreement may be used when one party is sharing confidential information with the other party. In other words, the confidential information is going "one way". This is also often called a "unilateral" Confidentiality Agreement. For example, this might be used in the case of a startup founder who is pitching their business idea to potential investors. It might also be useful when an employer is sharing confidential information with an employee.
Alternatively, a two way Confidentiality Agreement may be used when both parties are sharing confidential information with each other. In other words, the confidential information is going "two ways". This may also be called a "bilateral", "mutual" or "reciprocal" Confidentiality Agreement. This might be used in the case of two potential business partners who want to discuss some kind of joint venture, meaning that both parties are sharing their own confidential information.
If you are planning to share information with another person or organisation, and you would not be happy if they passed that information on to anyone else, then you should consider using a Confidentiality Agreement.
If you are unsure whether or not you need one, then you may be better off using one, but should also consider seeking legal advice.
If you are concerned about presenting people with a serious legal document such as this, our Confidentiality Agreement provides an option to create a shorter and more user friendly document (of the type that is often called an NDA). Many people like to use this shorter document as a quick and easy solution to ensure that their confidential information is protected during preliminary discussions.
In some cases, the parties might have signed other related documents, and these might also touch on confidentiality. For example, our Employment Agreement, Service Agreement, Joint Venture Agreement and Business Sale Agreement all deal with confidentiality to varying degrees. However, these documents only include general confidentiality clauses which may not provide as much protection as a standalone Confidentiality Agreement does.
In addition, the simple act of being presented with a separate Confidentiality Agreement can help to signify to the other party that confidentiality is a serious matter, and can ensure that they are aware of their obligations in relation to it.
Therefore, even if confidentiality has been mentioned in other relevant documents between the parties, if confidential information is being shared then it is generally preferable to prepare a separate Confidentiality Agreement.
Maybe you are on the other side of the equation. Maybe you are an employee, potential startup investor, potential business partner or a service provider, and somebody has given you a Confidentiality Agreement or an NDA and has asked you to sign it. Should you sign it?
Firstly, if you are not sure, then you should seek legal advice. You should never rely on something that you read on the internet before signing an important legal document.
Next, you need to make sure you understand what the document actually does, so you need to read it carefully, and consider seeking legal advice to help you interpret it.
It is not reasonable for anyone to give you a legal document and to expect you to sign it without first having the chance to make sense of it. So do not feel pressured to sign it.
If a person signs a Confidentiality Agreement, but then releases the confidential information in breach of the Confidentiality Agreement, then they are likely to face significant consequences.
The exact consequences that they will face will depend on what is actually set out in the Confidentiality Agreement. However, generally speaking, if a party breaches a Confidentiality Agreement and this causes the other party to suffer losses, then the breaching party is likely to have to compensate the other party for the full amount of their losses. For example, if the losses amount to a $100,000 reduction in business profits, then the breaching party might be liable for $100,000.
Of course, in many cases, once confidential information has been released, no amount of money can undo the damage. Therefore, it is also important to take practical steps to manage any confidential information, for example, by making sure it is only released to people who need to know it.
If you release or share some of your confidential information, but do not have a Confidentiality Agreement in place, then you have no way to protect that information. Whoever you share the information with, will be able to do what they like with it. They could pass the information on to your competitors. They could report it to journalists. They could copy your ideas for their own benefit. They could set up their own business in competition with you.
Therefore, if you are dealing with confidential information in any way, you should use a Confidentiality Agreement.
A Confidentiality Agreement (like any legal document) may not be legally binding if it is not signed properly by both parties.
It is an easy mistake to make, to go to the effort of preparing a Confidentiality Agreement, only for the other party to sign it in a way that is not legally binding.
In many cases, you may not realise that this is an issue until it is too late (once the confidential information has been mishandled).
Therefore, it is important to make sure that the appropriate signature clauses are included in the Confidentiality Agreement (you have various options in our template Confidentiality Agreement). It is also important to make sure that any person(s) signing it have the legal authority to do so.
For example, in Australia, persons under the age of 18 are generally unable to enter contracts (unless they are for essential items), so they may need to have a parent or guardian sign on their behalf.
If a partnership is signing a Confidentiality Agreement, then one partner usually has the ability to sign on behalf of the entire partnership. However, it is possible that within the partnership agreement, there can be restrictions on the signing of contracts. Therefore, it is important to review a copy of the partnership agreement to confirm that any person proposing to sign on behalf of the partnership has the legal authority to do so.
If a company is signing a Confidentiality Agreement, then it may do so:
To provide an example, if you plan to share confidential information with a company, and have their receptionist sign a Confidentiality Agreement, you might later discover that the receptionist was not authorised to sign on behalf of the company. This could be a significant problem if you later try to enforce the Confidentiality Agreement, as you may find that the company is not bound by it, as the company never actually signed it.
If you have any concerns about this, then you may need to obtain legal advice.
If you have a well drafted Confidentiality Agreement, and have had it validly signed by all relevant parties, then you have taken a significant step towards protecting your confidential information.
However, it is worth remembering that even if you have a Confidentiality Agreement in place, it is possible for someone to mishandle your information in violation of the agreement.
For example, if someone signs a Confidentiality Agreement, but then publishes your sensitive business information online, the information is out there, regardless of the agreement. You may take legal action against the person who published the information, but you cannot make people forget the information they have already seen online.
Therefore, a good Confidentiality Agreement should be part of your broader strategy to protect your confidential information. In addition you may think about limiting the amount of information that is actually shared to only that which is strictly necessary. You may also think about clearly marking any relevant documents as "Confidential". In addition, you may consider registering copyrights, trademarks or patents (if appropriate).
If in doubt, seek legal advice about your situation before releasing any information.
A Confidentiality Agreement is a valuable legal document which many Australian businesses use on a regular basis.
It can enable people or businesses to share information in confidence, so that they can have open and honest discussions or negotiations.
There are various terms which can be adapted to suit the particular circumstances with which parties may be dealing. Therefore, it is important to make sure that the Confidentiality Agreement accurately reflects your needs, and that you fully understand the terms of it before signing it.
As with any legal matters, if you have any doubts or concerns about your own situation, seek legal advice.