Employers are often faced with striking the proper balance between protecting the company and pleasing employees. This issue can come to the forefront when management requires employees to sign a non-competition, non-disclosure, or confidentiality agreement.

When a company is weighing its options regarding confidentiality agreements, it should understand why they are important and the function they serve.

1. Information Is Confidential Based on Your Actions to Keep It Confidential

All confidentiality agreements will contain a lengthy paragraph defining what constitutes “confidential information.” Defining confidential information is the first step in ensuring the information is protected.

When a potential breach of a confidentiality agreement is brought before the court, the defendant will attempt to poke holes in the definition of “confidential information.” By creating a policy, your company is given the responsibility to see that it is followed. This means instituting a procedure to ensure documents and other information are marked confidential and treated as such. Consistent enforcement of this policy will preempt potential arguments by a future defendant.

The written agreement is a fundamental step in this process and gives businesses the framework to build a sturdy confidentiality platform.

2. Just Because You Consider Information Confidential Does Not Mean the Law Will Protect It

The law is not designed to protect every piece of information you consider to be confidential. Federal law will protect your trademarks, copyrights, and patents, and state law will protect your trade secrets, but your confidential information may not fit within those groups. Without a confidentiality agreement in place, that information is at risk.

For example, let’s consider customer lists. Surely a customer list is a vital piece of information within a company. Many companies would not want their competitors to have access to its customer list. But, a decision by the Eastern District of Michigan, in Wysong Corp v MI Indus, 412 F Supp 2d 612, 629-30 (ED Mich 2005) (citing Hayes-Albion v Kuberski, 421 Mich 170, 184 (1984)), makes it clear that trade secret law will not protect that customer list, unless a confidentiality agreement is in place.

This reality must be weighed when a company is determining whether a confidentiality agreement is right for its business and employees.

3. Leverage for the Future

Building and growing a business is not just about putting out the daily fires. Long-term planning is what positions businesses to take additional risk and reap greater benefits.

While all may seem calm at the moment, things change. Employees will leave for any number of reasons. Is your business ready for a high-level employee to leave? What if the separation is on bad terms? Would your business be concerned about the employee using certain information with a competitor?

A confidentiality agreement shoulders this burden by creating specific duties for employees, and former employees, to follow. Further, it will provide your company with an avenue of relief to prevent the disclosure of information before it happens. Finally, it will be drafted to make the breaching party liable for your costs and attorney fees, providing you greater leverage in any negotiations.

What a Comprehensive Confidentiality Agreement Should Include

A well-drafted confidentiality agreement does more than simply state that certain information is confidential. It builds a legally enforceable framework that clearly identifies the information being protected, the obligations of the receiving party, and the remedies available for breach. Here are the key provisions every confidentiality agreement should address:

• Definition of confidential information: A precise, comprehensive definition of what information is covered. The definition should be broad enough to cover all legitimately sensitive business information—including customer lists, pricing data, business strategies, technical processes, and financial information—while being specific enough to be enforceable.
• Exclusions from confidential information: Most agreements exclude information that becomes publicly known through no fault of the receiving party, information the receiving party independently developed, and information lawfully obtained from a third party. These carve-outs are standard and reasonable.
• Obligations of the receiving party: The agreement should specify exactly what the receiving party is obligated to do: maintain secrecy, use the information only for permitted purposes, restrict access to those with a need to know, and implement security measures consistent with those used for the receiving party’s own confidential information.
• Term and post-employment obligations: The agreement should specify how long the confidentiality obligations last. Many confidentiality provisions extend for a defined period after the employment or business relationship ends—typically two to five years—or in the case of true trade secrets, indefinitely.
• Injunctive relief provision: Because monetary damages are often an inadequate remedy for breach of a confidentiality agreement—once information is disclosed, it cannot be undisclosed—the agreement should expressly acknowledge the availability of injunctive relief and waive the requirement of posting a bond as a condition of injunctive relief where permitted by applicable law.
• Return or destruction of materials: Upon termination of the relationship, the agreement should require the receiving party to return or destroy all materials containing confidential information.

Confidentiality Agreements and the Defend Trade Secrets Act

The federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836 et seq., enacted in 2016, created a federal civil cause of action for trade secret misappropriation and added important whistleblower immunity protections. Under 18 U.S.C. § 1833(b), an individual may not be held criminally or civilly liable for disclosing a trade secret in confidence to a government official or to an attorney for the purpose of reporting or investigating a suspected violation of law. The DTSA requires that all confidentiality agreements entered after the DTSA’s enactment include a notice of this immunity, either directly or by reference to a policy containing the notice. Failure to include the notice does not invalidate the agreement, but it does bar the employer from recovering exemplary damages and attorney’s fees in a DTSA action against the employee.

Tailor a Confidentiality Agreement for Your Business Today

To speak with an attorney experienced in creating, enforcing, and defending confidentiality agreements, contact Revision Legal today. With offices in Michigan and a commitment to communicate electronically in our paperless office, Revision Legal represents businesses anywhere in the country.

Contact Revision Legal by calling 855-473-8474.

Non-Compete Agreements vs. Confidentiality Agreements: Key Differences

Confidentiality agreements are often confused with non-compete agreements, but they serve different purposes and are subject to different legal standards. A confidentiality agreement restricts what information an employee can use or disclose after leaving the company. A non-compete agreement restricts what jobs or business activities the employee can engage in after departure—it prevents the employee from working for a competitor or starting a competing business for a defined period in a defined geographic area.

In Michigan, non-compete agreements are enforceable under MCL § 445.774a if they are reasonable in scope, geographic area, and duration. However, Michigan courts scrutinize non-competes carefully and will refuse to enforce provisions that are overbroad. Confidentiality agreements, by contrast, are subject to a more permissive legal standard—courts are generally willing to enforce well-drafted confidentiality provisions without the same level of scrutiny applied to non-competes. For businesses that want to protect their confidential information without the enforceability risk that comes with a non-compete, a comprehensive confidentiality agreement is often the more reliable tool. Contact Revision Legal to discuss the right combination of employment agreements for your business.

A well-designed confidentiality agreement program is one of the most cost-effective legal investments a business can make. Implementing confidentiality agreements consistently across your workforce—and ensuring that the agreements are legally compliant under both Michigan law and the federal Defend Trade Secrets Act—provides a foundation for protecting your business’s most valuable information assets. Contact Revision Legal today for a consultation tailored to your business’s specific confidentiality needs.