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Employee non-disclosure agreement: How-to guide

Most businesses have confidential and private information such as financial data, product plans, customer lists, and blueprints. Disclosing such information can cause significant harm to a company's business, mainly if it falls into the hands of competitors.

With today's technology, data can spread globally within hours or even minutes. That's why a comprehensive employee confidentiality non-disclosure agreement is crucial for safeguarding your information.

  • It notifies all staff members that they have a significant and ongoing duty of confidentiality to the company.
  • A nondisclosure agreement signed at the beginning of an employment relationship emphasizes the importance of protecting this type of information and alerts prospective employees that your company takes this issue very seriously.

What are the benefits for companies using confidentiality agreements?

Here are the key benefits:

  • When employees sign the agreement, they acknowledge that if they disclose sensitive information, it breaches their employment contract and carries serious consequences.
  • The agreement allows both parties to have an open discussion about the company's business, where questions can be answered and discussed with complete information from both sides.
  • Companies using confidentiality agreements have much to gain and little to lose, as their sensitive information and certain trade secrets remain protected and secure.

What are the key aspects to consider for employment non-disclosure agreements?

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Creating non-disclosure agreements is the first of many steps in establishing a healthy, professional, and dispute-free workplace. It is always better to consider the following key aspects to protect your company and its employees:

Reviewing the confidentiality agreement

It's always a good idea to thoroughly review the nondisclosure agreement after drafting it to ensure the terms and conditions apply to the specific employee. A personalized approach is often the best, as the requirements for each role may be unique.

To ensure the applicant understands the confidentiality agreement, it is a good idea to give them enough time to read and sign it, ideally a few days. Ensuring that the agreement's terms are crystal clear to all parties involved significantly reduces the chances of misunderstandings or disagreements. This will lead to a smoother and more efficient process for everyone involved.

Signing the agreement

Employees should sign employment agreements, including confidentiality agreements, before starting work. Sign two copies of the agreement, one for each party, ensuring both parties have a signed copy for their records.

Maintaining proper documentation

It is vital to keep the employee's confidentiality agreement in their personnel file and other critical documents such as employment agreements, invention assignments, progress reports, and disciplinary actions.

Implementing best practices

It is important to remind employees that the materials they handle at work are confidential and proprietary. Even after signing a confidentiality agreement, employees need to remember the warnings and instructions provided. Therefore, it is recommended that your workplace follows the best practices and schedule annual meetings to review important employee policies, including those related to confidentiality. During these meetings, the HR department should maintain a record of attendees. Additionally, when your company shares confidential documents with employees, it is suggested to mark the document with the word "CONFIDENTIAL" written in bold letters on its front page.

Conducting exit interviews

Change is the only constant, which is undoubtedly true regarding employment. Therefore, companies must conduct an exit interview at the end of an employment relationship. During this meeting, the organization must remind the employees of their continuing obligations to the company, including maintaining confidentiality of information beyond the termination of their employment period.

Understanding the clauses of the entire agreement

An image of an employee holding NDA wooden blocks and sitting in front of a laptop.

The following provision-by-provision instructions will help you understand the terms of the employment confidentiality and non-disclosure agreement.

Introduction

This initial section identifies the parties (i.e., the company and the employee). For an agreement to be enforceable, each party must benefit from the consideration. In nondisclosure agreements, the employer gets the employee's promise not to disclose secrets, and the employee gets employment (or continuing employment) from the company. It is best if the agreement is signed before the commencement of employment. If it is not possible, the agreement must be signed at the time of hiring.

Confidential information

This clause defines confidential information for the agreement and highlights the importance of implementing adequate security measures to safeguard your company's proprietary information.

Company information

This section outlines the company's confidential information and the employee's obligation to maintain confidentiality.

Exceptions

If there are, provide any exceptions to the general rules of non-disclosure here. These are the situations where an employee's disclosure of "confidential information" does not violate the agreement, e.g.,

  1. If the "confidential information" has already been made public by someone other than the employee.
  2. If the "confidential information" had previously been provided to the employee before they signed the agreement, during which time the business information either was not considered confidential or was provided in a manner suggesting it was not confidential.
  3. If the employee is legally compelled to provide confidential information. In such cases, however, the employee must alert the employer immediately so that it may limit potential damage from further disclosures.

Former employment information

It is crucial for all companies to maintain the confidentiality of their information and to avoid using another company's protected information. If an employee uses confidential information of their previous employer while working for you, it can negatively impact your business. The former employment provision reminds new employees of their obligations to you and their continuing obligations to their former employers, according to which they must protect the confidential information of their former employers.

Third-party information

This informs the employee that any third-party confidential information learned during employment is protected under the agreement, in addition to the company's confidential information.

Return of property

This provision states that the employee must return all company property upon termination. It is crucial to communicate this policy clearly in the agreement and reiterate it in the employee handbook, exit materials, and severance agreements. It should be clear to them that employees must return all company property before leaving.

Notification to a future employer

It's important to note that an employee may have ongoing responsibilities towards their former employer, even after their employment has ended. It includes the duty to safeguard any sensitive information to which they previously had access. The provision clarifies that the present company can inform the employee's future or prospective employer about these ongoing duties.

Legal and equitable remedies

Due to the sensitive nature of its trade secrets, a company can include a provision allowing it to seek court remedies to prevent anyone from distributing additional information. This provision protects the company from any potential damages arising during the unauthorized release of confidential information.

For instance, if a former employee of Coke® were to disclose information regarding the "secret formula," which might be their biggest trade secret, it would severely impact Coke® and its business. In such a scenario, Coke® would likely pursue legal action to claim damages and obtain an order against further distributing their protected information.

Successors and assigns

During a company's lifetime, there may be instances where it merges with another company, acquires one or more businesses, or sells off some of its business divisions. In such cases, the company may transfer its agreement to a surviving entity or an affiliate without seeking the consent of its employees. With this provision, if the company changes ownership, the new owner will not be required to renegotiate the agreement. Instead, the agreement will remain in effect without any changes.

Continuing obligations

This provision serves as a reminder for employees to maintain confidentiality of protected business information and return company documents and any intellectual property after termination.

Severability

This protects the terms of the agreement as a whole, even if one part is later invalidated. It will not undo the entire agreement; instead, only the section dealing with notification would be invalidated, leaving the remainder of the agreement enforceable.

Counterparts; electronic signatures

This clause states that regardless of where the parties sign the agreement or how they transmit signatures (via electronic devices such as computers or fax machines), all the separate pieces will be considered part of the same agreement. In today's fast-paced world, it is not uncommon for the signing parties to be located in different cities, making it impossible for them to be physically present in the same room. This provision is an effective solution in such situations, enabling efficient business operations without compromising the agreement's validity.

Governing law

This section allows the company to choose the governing laws of the state to interpret the document.

Frequently asked questions

What are employee non-disclosure agreements?

Employees may come across their company's private information, which they may not be directly responsible for. Additionally, they may have access to confidential information by attending meetings where sensitive matters are discussed.

Ensure that your employees understand what constitutes confidential information to prevent unauthorized disclosure. One way to achieve this is by having employee non-disclosure agreements, also known as Employee NDAs or confidentiality agreements, which

  • Help define confidential information and the parties involved, such as the company's customers, vendors, or third-party contractors.
  • Help protect sensitive information and prevent data leaks.

Why is it important to emphasize the importance of confidentiality for its employees?

A company can create a work environment that emphasizes the importance of confidentiality for its employees. It can help prevent accidental disclosure of sensitive information and safeguard the business. When employees clearly understand the consequences of a breach, they will be more careful in fulfilling their duties and responsibilities. In the event of a breach, having this knowledge can help the company defend itself and provide the necessary documentation to protect its interests.

What information is needed to complete a non-disclosure agreement for an employee?

Here's the information you'll need to complete your employee non-disclosure agreement and protect the confidential information of your company:

  • Whom it's coming from and whom it's going to: It is crucial to have the details of the party (from whom it is coming) and the business name and address of the other party (who will receive this document) ready and their contact info handy
  • Which state will govern it: Specify the state so it's clear what state laws apply to the document
  • Time period: It is vital to specify the time frame within which the employee is required to return any confidential company information that they may possess. This will help ensure that the information is not misused or disclosed in an unauthorized manner
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