Is Your Confidentiality Agreement Enforceable?
As part of their job responsibilities, many employees have access to their employer’s confidential and/or proprietary information. To protect this information, employers often require employees to enter into confidentiality agreements. While non-compete provisions and other similar restrictions are often heavily scrutinized by courts to determine their enforceability, simple confidentiality provisions are generally considered enforceable. Still, there are a few things to keep in mind to ensure that such confidentiality agreements or provisions are enforceable.
At a minimum, regardless of what state law applies, confidentiality agreements should include a whistleblower immunity notice as provided by the Defend Trade Secrets Act of 2016 (DTSA). The DTSA is a federal law that protects an employer or other owner’s trade secrets. The DTSA requires that, in any confidentiality agreement, employers provide notice to employees regarding special situations in which the employee cannot be held liable for disclosing trade secrets, such as in whistleblower situations or in cases where the employee discloses the trade secrets under seal in an official legal proceeding.
In Indiana, there are not many other specific requirements for a confidentiality agreement. At a minimum, an employer should always ensure that its confidentiality agreement is reasonable. Generally, confidentiality agreements in Indiana are permitted to continue indefinitely but the agreement should make clear that the information covered by the agreement is only information that is, in fact, proprietary, non-public, and protected as confidential. If an agreement is so broad as to effectively prevent an employee from finding new employment, the agreement may be considered unenforceable or run afoul of restrictions on conventional non-competete agreements. In addition, if an agreement contains a confidentiality provision alongside an overbroad or unenforceable non-competition provision, there is a risk that a court may decline to enforce the entire agreement, thereby rendering the confidentiality provision unenforceable along with the non-competition agreement. In a comprehensive agreement, an employer should take care to include severability or other savings provisions to prevent such an outcome.
Though most states evaluate confidentiality agreements for their reasonableness, some states have common law or statutory requirements with which any confidentiality agreement must comply. Employers should be careful to craft their agreements so that they comply with any local requirements and would be valid in whatever jurisdiction(s) they might seek to enforce the agreement.
If an employer seeks to have an employee sign a new confidentiality agreement or sign a confidentiality agreement after the employee has already begun working for the employer, it may be necessary for the employer to provide some additional consideration or payment of some kind in return for the employee’s execution of the agreement. Some states, such as Indiana, generally consider continued at-will employment to be sufficient consideration for a new confidentiality agreement, but some other states, such as Kentucky, do not generally consider continued employment to be sufficient consideration to support a new agreement or obligation.
If a court finds that a confidentiality agreement is not enforceable, an employer may still be able to protect against the misappropriation or disclosure of its trade secrets using state trade secret law or the federal DTSA. Still, such statutory protection is limited only to intellectual property that meets the strict definition of a trade secret.It is therefore often more narrow than the protection afforded by a confidentiality agreement, which can protect confidential information that would not necessarily be considered a trade secret.It is therefore important for an employer to review its confidentiality agreements regularly to ensure all employees with access to such information are covered and that the coverage is reasonable and complies with current applicable state law.