Confidentiality Agreements & How To Protect Your Business
Colorado Confidentiality Agreements
Often, businesses will have information and secrets that need to remain confidential so that the business can maintain a competitive advantage in an industry. However, day-to-day operations may require the employees to have access to that confidential information. Therefore, it is vital to that business’s employment relationships to create a confidentiality agreement with employees who have access to any confidential information.
Confidentiality agreements protect businesses without restricting employees
Specifically, a confidentiality agreement is an agreement that prohibits a person from revealing certain information that a business desires to keep confidential. A confidentiality agreement can keep an employee from revealing confidential information about a business during the course of employment and after the termination of the employment relationship.
Confidentiality agreements are more likely to be enforced than restrictive agreements, such as a noncompete agreement. While somewhat similar to a noncompete agreement, a confidentiality agreement differs because it does not restrict an employee from accepting employment or working in a chosen employment field. Rather, a confidentiality agreement simply stops an employee from revealing confidential information to anyone.
For example, a noncompete agreement will specify that a certain person cannot go work for a competitor in Colorado for three years. This restricts a person from working in a particular field of work in Colorado for that time frame. On the other hand, a confidentiality agreement will simply specify that the employee cannot reveal information of a confidential nature to a competitor. In that case, the employee is free to go work for a competitor, so long as they do not reveal the confidential information to the new employer.
Confidentiality agreements do not protect general knowledge
Confidentiality agreements must be reasonable or they will not be enforced. An unreasonable confidentiality agreement would be an agreement that is overbroad or is unfair to the employee.
One way a confidentiality agreement could be considered overbroad or unfair is if it tries to protect information that is not confidential in nature. General knowledge or skills that an employee picks up during the course of employment cannot be protected information. For instance, a restaurant could probably not enforce a confidentiality agreement with a cook who learns only basic skills, like how to chop an onion, from his job at the restaurant. Those basic skills are accessible to the general public and are not confidential.
Information can be confidential if it is a trade secret
Generally, information can be treated as confidential if it is a trade secret. In Colorado, a trade secret is information that a business has a substantial interest in keeping secret and has taken efforts to keep secret. To determine whether information constitutes a trade secret, several factors are considered:
- Extent that information is known outside the business
- Extent that information is known inside the business
- Precautions taken by the holder of the information to guard the secrecy
- Value that the secrecy of the information represents to the holder of the information
- Money spent or effort expelled to obtain or develop the information
- Time or expense it would cost a competitor to obtain or develop the same information
For example, a coffee shop that spends time and effort to create a special coffee roast will probably want anyone that knows how to create the blend to keep that information secret. While people outside and inside the business might know how to obtain and roast coffee beans, they do not know the specifics about how the company creates that special blend. So long as the company makes an effort to maintain the secrecy of how to obtain and roast its specific blend, the information would probably constitute a trade secret.
Many different kinds of information could qualify as trade secrets. A trade secret could be any information that the business has an interest in keeping secret, including:
- Contract information
- Customer lists
- Financial information
- Marketing Plans
- Special recipes
- Development methods
- Secret formulas
- Specific processes
- Supplier lists
- Training materials
Duration and geographic scope are irrelevant to determining an agreement’s reasonableness
The reasonableness of a confidentiality agreement does not depend on the duration or geographic scope of the agreement. A confidentiality agreement can last indefinitely, so long as the information protected remains confidential. Additionally, the information is confidential no matter where it is disseminated, so no limitations are required in terms of geographic scope.
For instance, a local restaurant develops a special barbeque sauce. The restaurant bottles and sells the barbeque sauce to customers. People come from all-around to buy the barbeque sauce. To maintain the competitive advantage that this barbeque sauce gives the restaurant over competitors, the restaurant has employees who know how to make the sauce sign a confidentiality agreement. This confidentiality agreement protecting the recipe of the barbeque sauce will most likely be enforced, even if it does not contain any durational or geographic scope restrictions. However, if the restaurant then publishes a cookbook containing the recipe for the barbeque sauce, the confidentiality agreement will no longer be enforced because the information is no longer confidential, since the restaurant has made it available to the general public.
Specificity and relevance are important when enforcing an agreement
An adequate confidentiality agreement helps ensure that information of value to a business or that gives a business a competitive edge remains confidential. If an employee reveals confidential information to a competitor or leaks it to the general public, a confidentiality agreement helps the business seek recourse against that employee.
To make sure that an agreement will be enforced if an employee reveals confidential information, it is important to make sure that the agreement adequately covers the business’s needs without becoming overbroad. When constructing a confidentiality agreement, it is important to ensure that the agreement clearly specifies certain details. For instance, the agreement should specify:
- What information or type of information the business desires to keep confidential
- Whether there is any authorized way to use the information
- Why the information should be kept confidential (e.g., gives the business a competitive advantage in the industry)
- Duration of the agreement (i.e., indefinitely, three years, etc.)
Clearly defining the terms of the agreement will help the court determine that the agreement is reasonable if the business has to enforce it. A business should also make sure that the agreement is tailored specifically to that business.
Without a confidentiality agreement, it is much more difficult to recover damages and take action against an employee who reveals confidential information and hurts a business’s bottom line.
Waiting until someone breaches a business’s confidence can be too late. Having a reasonable and adequate confidentiality agreement in place, however, can show the court that the employee knew of the confidential information and revealed the information despite the agreement. While a court cannot reverse the dissemination of the confidential information, it can award damages to the business to mitigate some of the harm that the business suffered due to the revelation.
Your Denver business attorneys
Meet with one of our experienced business attorneys lawyers to construct a confidentiality agreement that meets the needs of your business. To schedule an assessment, call us at 303-688-0944.