Off the Cuff: Confidentiality Agreements

Confidentiality agreements protect more than your assets. Just as importantly, they protect your customers.
Sept 15, 2008

By Mark L. Venit, MBA, Contributing Writer

Some of you might recall a column I published last November that addressed how to keep contract customers out of your production area in order to protect your work. This week's column looks at the other side of the same coin -- employee confidentiality agreements. These are legal agreements that are intended to keep your employees from talking about who's placing orders, for what quantities and dollars, what's being produced and who the end-user might.

Confidentiality Agreements, Defined
Simply put, a confidentiality agreement is a written instrument that tells employees to keep their mouths shut regarding what business they see coming and going through your shop and what goes on inside. Sometimes referred to as a "nondisclosure," "confidential disclosure" or "secrecy" agreement, its basis derives from the wisdom of "Loose lips sink ships." Will your employees sign it? Is it enforceable? Are long-term employees exempt in any way, as is sometimes the case with non-compete contracts?

Yes, they will sign it, since they're not supposed to discuss such things with spouses, lovers, parents and kids, nor with contract customers, vendor reps or other people who shouldn't know too much about your customer base and business affairs.

Whatever happens in your business is considered your most valuable intellectual property, a strong asset that you own -- period. Order forms, shipping information, print specs, digitizing instructions and production considerations are matters of an uncompromised proprietary nature and strictly confidential. Any employee who refuses to sign something that says your business isn't any of their business when they're off the premises isn't an employee you want to keep. My advice: If they don't sign, they don't work.

Here's a brief outline of what a typical agreement covers:
1. The company considers "information of a technical, business or planning nature" to be proprietary and kept confidential between owners and employees only.

2. The employee will see much that could harm the company if outsiders see or hear about it. As a result, employees are on notice not to disclose anything without first obtaining written permission to do so, and that agreement remains in effect even after termination of employment.

3. Upon termination, the employee surrenders all information to the company as well as any other tangible property in his possession demanded by the company.

4. If the employee divulges anything, the company is entitled to obtain a court injunction to enforce its rights.

5. The employee acknowledges what the company is saying and will comply.

What is Enforceable?
Are confidentiality agreements enforceable? Absolutely. But you have to pay all the freight (legal fees) on this since it's a civil matter not a criminal prosecution. Must current, long-term employees sign? Absolutely. If a veteran refuses to sign, it could be an indication that he's about to bolt to a competitor or about to go out on his own and compete with you.

Unlike non-competition agreements, which may be difficult to impose on long term-employees, confidentiality agreements are not matters of conjecture going forward. Either an employee agrees to sign, or his employment is over. There is no reason to make exceptions.

Though any legal instrument used in your company should always have your attorney's blessing, good confidentiality agreements can be found online, at any bookstore or at your local library. Simple and effective downloadable confidentiality forms and software cost $10 to $30. For most companies, boilerplate versions of confidentiality agreements are quite sufficient to be valid and legally enforceable.

Well-run companies usually make confidentiality matters part of employment contracts and clearly state the policy in their employee manual. All too often, confidentiality issues don't get any attention until after something terrible happens. You should get ahead of the curve before a crisis occurs.

The easiest time to have employees sign a confidentiality agreement is immediately upon hiring. A good agreement is written in plain English without lawyerly gobbledygook. (To make it easy for non-English speaking staff, use plain Spanish or the appropriate language.) Though most states do not require it, you can offer employees 24 to 72 hours to review the document.

If your company currently has no confidentiality agreements with your employees in place, the time to put one in place is yesterday. Should any employee ask why it's necessary to pledge his silence in writing, explain why. Feel free to ask why he might not want to sign. The employee won't be able to come up with a valid reason, short of a guilt-tripping "Don't you trust me?"

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., which provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. He also is the chairman of Shop Works Software LLC, a provider of industry-specific business software. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. He will be teaching a new all-day workshop, "Getting to the Next Level: Surviving and Thriving in Good Times and Bad," at ISS Fort Worth. You can reach him at markvenit@cs.com.