Confidentiality Agreements, also known as Non-Disclosure Agreements, are the Lex Luthor of the business world- controversial, seemingly self-serving, revered by its supporters and lambasted by its detractors. With all the chatterings about these contracts, it’s difficult to know whose voice to trust.
For this reason, it is helpful for startups and entrepreneurs to gain insight from the people who know the law the best- lawyers. We asked a handful of lawyers experienced with Confidentiality Agreements to share their best tips and insights for you to mull over for the next time you hand one over.
1. Protect your trade secrets from the get go
Kathleen Lynch, of Kathleen Lynch PLLC, an intellectual property attorney for over 25 years, cautions employers to make concerted efforts to better protect their trade secrets in the first place. This process should include, “identifying them, educating their employees on what they are, and limiting access to them.”
The onus ultimately falls in your hands to set up measures to help ensure your employees abide by the Confidentiality Agreement, and aren’t given the opportunity – accidental or otherwise – to break it.
2. “Don’t be a jerk”
Lynch also offered the rather curt advice, “don’t be a jerk”, after working on many cases where the employer could have avoided wasting a considerable amount of money on litigation.
Lynch says that had such companies “simply adopted a more congenial atmosphere and more employee-friendly programs,” their expenditure would have been far less in the end. As the old adage goes, “prevention is better than cure.” The same goes for protecting your sensitive and confidential company information.
3. Include a liquidated damages clause
Hamilton Lindley, a partner at Dunnam & Dunnam, strongly advises anyone who is thinking of drafting a Confidentiality Agreement to consider including a liquidated damages clause. The clause should specify the amount of money that will need to be paid in the event the contract is breached.
But be aware, that as Lexis Nexis explains, if you opt for this clause and it is breached, a court is “unlikely to find irreparable harm justifying an injunction since the agreed-upon liquidated damages provision acts as a substitute for irreparable harm and provides an adequate remedy at law.”
4. “Don’t call the police”
It may seem like advice to scoff at, but Lindley insists it is important to drive this point home given the continual incidences of companies calling the police to report someone for stealing their trade secrets or spilling their confidential information.
“[T]he company ends up paying a significant amount of money to their former employee,” he said of such companies. “It may feel good to get somebody arrested, but it won’t exactly engender loyalty to your company. You’re going to pay for it.”
5. “If everything is ‘confidential’ then nothing is ‘confidential’”
Mitch Baker, a managing partner of Fisher & Phillips who has defended a variety of employers in labor and employment law matters, shared this well-known saying in intellectual property law to convey the importance of being specific when drafting Confidentiality Agreements.
“Keep them as simple as possible and limit what you define as ‘confidential’ to those things that truly are.” In essence, that means not to pack in every single piece of information into the contract to be treated as confidential. Keep in mind that, “if you haven’t treated it as confidential, the court won’t require your former employees to do so.”
6. Stand your ground if your Confidentiality Agreement is breached
It is of utmost importance to stop a breach in its tracks with compelling and swift action. In most cases, says Baker, a Cease and Desist letter to both the former employee and their new employer is enough to halt the former employee from continuing to breach the agreement.
A business generally can rectify a breach “by reminding the employee of their obligations [and] letting them know you’re willing to sue them to enforce the agreements”. He also lets their new employer know that if they continue breaching their contract with his clients, he will bring a suit against them for tortious interference with contract rights.
7. Collaborate with trustworthy people
Naree Chan, a lawyer at LegalTemplates.net who has advised startups on how to establish legal safeguards for their businesses, reminds people that a Confidentiality Agreement is not a replacement for working with people you can trust.
Use a Confidentiality Agreement as an opportunity to suss out whether this person is trustworthy to keep your business secrets confidential.
8. “Trust your instinct”
Similarly, Chan encourages people to “Trust your instinct” when it comes to finding reliable collaborators. While you should give people the benefit of the doubt, there is no substitute for your trusting your gut.
Does this potential business partner tend to engage in a lot of backbiting or gossip about other people’s business? What is their reputation in the community?
How do they respond when you ask them to keep certain information confidential? If you feel like someone cannot keep information private, you might just be right.
9. “Not all are created equal”
Jane W. Muir, an attorney at Gersten & Muir who focuses on business law for entrepreneurs, highlights that the quality of the Confidentiality Agreement “will determine the likelihood of success of a lawsuit, and recovery of damages to make the business whole and repay the damages from the disclosure.”
She stresses that it’s pivotal to draft a contract which adequately reflects the sensitivity of the information you want to keep confidential. “The more sensitive the information that you want to protect, the more you ought to be sure your contracts are well written.”
10. Make your contract count
According to Muir, a good Confidentiality Agreement includes, “a definition of the confidential information that may not be shared, specifies how the confidential information should be stored and protected, and identifies consequences for sharing the confidential information.”
Taking someone who has compromised your confidential information to trial or even settling outside of court is a costly operation. In order to make it worthwhile, Muir also recommends including a provision for attorney fees in the contract.
Author: Monica Mizzi is the editor and legal writer for LegalTemplates.net, a website which equips people with the right tools and free legal documents to become their own legal advocates.