Confidentiality Agreement

What is a Confidentiality Agreement?

A Confidentiality Agreement, also known as a Non Disclosure Agreement or NDA is a commercial agreement between two people or companies where the parties agree to protect the Confidential Information of one or both of the parties.

Non-Disclosure Agreements or Confidentiality Agreements generally enable parties to reveal information with commercial value that they might otherwise keep secret, so that commercial negotiations can continue openly and honestly.

What is confidential information?

Confidentiality Agreements usually include a description of confidential information. It generally refers to information that is sensitive to one of the parties and that they want to protect. For example, it could include trade secrets like recipes or formulas, intellectual property, customer lists, sales data, financial records, and customers' personal information.

A Confidentiality Agreement usually cannot protect information that is already public knowledge.

When is a Confidentiality Agreement needed?

When a person or organisation is planning to share some confidential information with another person or organisation, it is a good idea to use a Confidentiality Agreement or NDA.

The two main types of Confidentiality Agreement are:

• One way: when one party is sharing confidential information with the other party. For example, this might occur when a company is hiring a service provider to do some financial modelling for them. The company would need to provide sensitive financial information to the service provider, but the service provider does not need to provide anything confidential to the company.
• Mutual: when both parties are sharing confidential information with each other. For example, this might occur when two people are considering teaming up to invest in a project together. They might both need to share sensitive information with each other so that they are able to have in depth conversations about what each of them can afford to put into the project.

What is the difference between a Confidentiality Agreement and a Non-Disclosure Agreement?

A Confidentiality Agreement and a Non-Disclosure Agreement or NDA are really just different names for the same kind of document.

However, in practice, people often use the name "Confidentiality Agreement" when they want a longer and more comprehensive document. For example, if two companies are considering working together on a joint project and sharing a large amount of sensitive financial information, they might want a Confidentiality Agreement. On the other hand, if the parties are just having preliminary discussions and want a quick document to sign before their first meeting, then they might want a Non-Disclosure Agreement.

What is the difference between a Confidentiality Agreement and a Non-Compete Agreement?

While both documents impose some restrictions on the parties, they deal with different subject matter.

• A Confidentiality Agreement deals with restrictions on the sharing of information.
• A Non-Compete Agreement deals with restrictions on competing with another business (for example, to prevent an employee from poaching their old clients when they leave a job).

Is it mandatory to have a Confidentiality Agreement?

No, but if a person or business is sharing confidential information, then a written Confidentiality Agreement makes it much easier to protect that information.

What is not allowed in a Confidentiality Agreement?

A Confidentiality Agreement should not prevent a person from reporting a crime or regulatory concern, or safety concern - for example, if an employee sees that their employer is breaking the law, breaking environmental regulations or the employee notices a health and safety issue at work.

Who can enter into a Confidentiality Agreement?

Companies or individual people can enter a Confidentiality Agreement.

To enter into a Confidentiality Agreement, a person should be aged 18 or older and should have the mental capacity to understand what they are doing.

In some cases, if confidential information is being shared with a company, then the party that is sharing that confidential information will insist that the company also makes sure that its employees understand their confidentiality obligations and sign equivalent Confidentiality Agreements.

What can be the duration of a Confidentiality Agreement?

The duration (also known as the term) of a Confidentiality Agreement is often between one and three years. The term could be related to the duration of the relationship between the parties (for example, for the duration of an employment relationship, and then for another one year after that).

The term can be made longer than three years if required, but if it is unlimited, then there is a risk that courts will decide this is unreasonable.

A Confidentiality Agreement can be struck down by a court if it is found to be unreasonably restrictive.

What has to be done once a Confidentiality Agreement is ready?

Once a Confidentiality Agreement is ready each party should take the time to review it and make sure they understand it. They should also have the opportunity to obtain legal advice if required.

Once the parties are happy with the Agreement, they should sign it. They should both keep a signed copy for their own records.

What must a Confidentiality Agreement contain?

A Confidentiality Agreement should contain:

• The full legal names of both parties.
• A clear description of the type of information that is being shared and protected under the agreement.
• A clear description of the purposes for which the information can and cannot be used.
• An explanation of the measures that should be put in place to protect the information.
• An explanation of how long the information should be protected for.

Which laws apply to a Confidentiality Agreement?

There is no law or regulation governing the use or terms of Confidentiality Agreements in Australia. The broad principles that apply to contract and restraints of trade are applicable to this Confidentiality Agreement.

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