Confidentiality Agreement with Employees, Contractors and Vendors

December 10, 2021
business contract

Lucy Rana and Rupin Chopra

A Confidentiality Agreement also referred to as Non-Disclosure Agreement (“NDA”) is a kind of contract entered into by two or more parties with purpose of maintaining secrecy and confidentiality of information transferred during the course of business.

A Confidentiality Agreement can either be mutual, where both or all the parties entering into such an agreement share their respective confidential information, and are under the obligation of maintaining secrecy of information, or it can be unilateral where the confidential information is shared only by one party and the receiving party is required to not disclose such information as covered under the Agreement.

Confidentiality Agreement with Employees

A Confidentiality Agreement is essential to be signed between an employer and an employee so as to minimize the chances of any kind of disputes or problems arising at a future point, pertaining to some confidential information of the employer to which only employees had access. A Confidential Agreement being a legal document to keep a lid on such sensitive information, and maintaining confidentiality in writing with the employees lends smooth functioning of the company and deter theft, fraud or misuse.

Such agreements between an employer and an employee must provide for the protection of:

  1. Restricted Information- It refers to extremely confidential and valuable information of such nature, the disclosure of which may result in financial, commercial or reputational damage to the company. This may include trade secret, customer details, financial data, major product and marketing plans, etc.
  2. Internal Information- Such information may help in providing the company a competitive advantage in the market. Disclosure of this may result in considerable losses. This may refer to customer information, employee details, etc.

Confidentiality Agreement with Contractors

In the past few years, hiring independent contractors in place of permanent employees has become a prevalent practice, particularly because of the uncertainty of economy and the dynamic nature of workforce.

A wide range of activities can be contracted out ranging from accounting to cleaning. A Confidential Agreement with a contractor is basically signed to protect the trade secrets and other information of confidential nature disclosed to the contractor during the course of business. It is important to do so, as it would enable the company to proceed against the contractor for monetary damages at a later stage, when any such unauthorized disclosure occurs.

It is also pertinent to be mentioned that if an entity enters into a confidentiality agreement with one contractor, it must sign a similar agreement with all other contractors who have been exposed to the same information, to avoid any inconsistencies.

Confidentiality Agreement with Vendors

A Vendor Confidentiality Agreement refers to an agreement between a vendor and a buyer, where either one or both the parties decide to keep specific information private.

Such confidential information may include information that is not generally disclosed to public, such as, past or future products, manufacturing equipment, raw materials, technology, accounting, marketing, merchandising, personnel, research and development, purchasing, sales methods, suppliers, and any other confidential, technical, business or market information or data.

Essentials of a Confidentiality Agreement/ NDA

It is vital that a Confidentiality Agreement be precise and comprehensive, yet sharp and articulate. A too broad agreement may be declared void by the courts, whereas a too narrow one may deemed unenforceable. While drafting a confidentiality Agreement, be it with a vendor, an employee or a contractor, certain points are essential to be noted:

  • Clearly state the names of the parties entering into such an agreement.
  • Gives you the option to include an arbitration provision as well as fully customizable clauses to reflect the full intentions of the parties. In case a contractor wishes to hire a subcontractors, it is his responsibility to inform the hiring company and also provide subcontractors details so as to include it in the Agreement.
  • The Confidential Information to be protected must be stated as clearly as possible, to avoid any confusions at a later stage.
  • State the obligations of the parties involved to comply with, in accordance with the agreement.
  • Clearly mention the penalties for breaching an agreement, and may include damages in the form of loss of profits or missed business opportunities.
  • Add any exclusions to the Confidentiality Agreement, if applicable

Anushka Choudhary, Intern at S.S. Rana & Co. has assisted in the research of this article.

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