Why Is a Confidentiality Agreement Important for Businesses?

In any business, there is some information that the company would not want its competitors or people outside the realms of the organization to know. This includes client details, business plans and trade secrets. To protect this type of information from leaking, companies often ask new employees to sign a confidentiality agreement before starting employment.

Scope of the Agreement

By signing the agreement, the employee becomes liable to the organization for divulging information that the organization considers sensitive. Once signed, the agreement holds true for the entire duration of the employment and can also extend after the employment ceases.

The moment an employee signs this kind of agreement, he has the obligation to ensure that any sensitive information that he knows or gains during his employment should not be divulged outside the company intentionally or unintentionally.

Even after the employee separates from the organization, he cannot divulge the information, be it by word of mouth, hard copy or digital copy.

While it is a common practice to make employees sign this type of agreement, organizations also can get vendors, suppliers, contractors and other business partners to sign it.

Even individuals can make use of the agreement when they are divulging sensitive information to their accountants or other people.

Customizing the Agreement

Today, it is very easy to get a confidentiality agreement form from the Internet. There are many websites that allow companies and individuals to download this form for a nominal fee. Once you have the form, you can easily customize it to suit your needs. Alternatively, you can look for industry-specific forms, which will contain information that each industry would like to keep confidential.

When you are using a confidentiality agreement form, it is important to specify clearly how each party involved will handle the information. It should clearly mention the duration of the agreement or mention a time period during which the sensitive information can or cannot be disclosed. In addition, there should be provisions in the agreement to allow disclosure and access to certain type of information that the person may need work effectively.


If a person breaks the confidentiality agreement, the punishment will depend not only on the information that the person divulges, but also on the gravity of the situation. If you have signed such an agreement, you will lose your job and end up ruining your reputation as an employee or independent contractor. If the company decides to take you to court, you will have the added burden of fighting a lawsuit which can be quite expensive. While breaking the agreement may not lead to jail time, you could end up paying a substantial amount in damages.

Author’s Bio:

Mark Smith is a legal advisor, and comes across many people who are flummoxed by the intricacies of the different laws. He is of the belief that there is no substitute to thorough information, and the one who is informed will never lose his/her way. These posts are a part of his initiative of disseminating legal knowledge among common masses.


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