Why Confidentiality Clauses Are Essential
Every business has information it needs to protect — client lists, pricing strategies, product roadmaps, financial data, proprietary processes, and more. A confidentiality clause in an employment agreement establishes a contractual obligation for employees to keep this information secret, both during and after their employment.
Without a confidentiality clause, employers must rely on trade secret statutes and common law to protect sensitive information. While these legal protections exist, they are harder to enforce and require proving that the information qualifies as a trade secret and that the employer took reasonable measures to keep it confidential. A well-drafted confidentiality clause provides a clearer, more direct legal remedy.
What Is Confidential Information?
Defining the Scope
The definition of "confidential information" is the heart of any confidentiality clause. The definition should be broad enough to cover all sensitive business information but specific enough to give the employee clear notice of what is protected.
A typical definition includes:
- Business information — Financial data, business plans, strategic plans, marketing strategies, pricing information, and customer data
- Technical information — Source code, algorithms, formulas, product designs, manufacturing processes, and research and development data
- Personnel information — Employee compensation data, performance reviews, and organizational plans
- Third-party information — Confidential information received from clients, vendors, or partners under obligation of secrecy
What Should Be Excluded
Certain categories of information are typically excluded from the definition of confidential information:
- Information that is or becomes publicly available through no fault of the employee
- Information the employee already knew before starting employment (with documentation)
- Information independently developed by the employee outside of their employment duties
- Information received from a third party without any confidentiality obligation
Include specific examples of confidential information in your definition (e.g., "including but not limited to customer lists, pricing data, source code, and marketing strategies"). Courts find these examples helpful when evaluating the scope of the clause, and they give employees a clear understanding of what they must protect.
Obligations of the Employee
The confidentiality clause should clearly state what the employee must and must not do with confidential information.
Non-Disclosure
The employee agrees not to disclose confidential information to anyone outside the company, except as required to perform their job duties or as authorized by the employer.
Non-Use
Beyond non-disclosure, the clause should prohibit the employee from using confidential information for any purpose other than performing their job. This prevents an employee from using the employer's trade secrets to start their own business or benefit a future employer, even without disclosing the specific information.
Protection Measures
The employee should agree to take reasonable steps to protect confidential information, such as:
- Using passwords and encryption for digital files
- Not leaving confidential documents in public or unsecured areas
- Not discussing confidential information in public places
- Following company information security policies
Return of Materials
Upon termination, the employee must return all documents, files, devices, and other materials containing confidential information. The clause should also require the employee to delete any confidential information stored on personal devices.
Duration of Confidentiality Obligations
During Employment
Confidentiality obligations clearly apply during the employment relationship. Employees have both a contractual and a fiduciary duty to protect their employer's confidential information while employed.
After Employment
Unlike non-compete clauses, confidentiality obligations often survive indefinitely — or at least for as long as the information remains confidential. This is a critical distinction. While courts may limit a non-compete to one or two years, they generally uphold indefinite confidentiality obligations because the employer's interest in protecting trade secrets does not expire on a fixed timeline.
Some agreements specify a time limit (such as 3 to 5 years after termination) for certain categories of confidential information while keeping trade secret protections indefinite. This tiered approach can be effective for distinguishing between information that has a limited shelf life and true trade secrets.
Trade Secret Protection
What Is a Trade Secret?
Under the federal Defend Trade Secrets Act (DTSA) and state trade secret laws (most states have adopted the Uniform Trade Secrets Act), a trade secret is information that:
- Derives independent economic value from not being generally known or readily ascertainable
- Is the subject of reasonable efforts to maintain its secrecy
Your confidentiality clause works alongside these statutory protections. By having employees acknowledge their obligation to protect trade secrets and by implementing security measures, you strengthen your ability to claim trade secret protection if a misappropriation occurs.
DTSA Whistleblower Notice
The Defend Trade Secrets Act requires employers to notify employees of their immunity for disclosing trade secrets in confidence to government officials or attorneys for the purpose of reporting suspected violations of law. This notice must be included in any contract or agreement governing trade secrets or confidential information.
Federal law requires that your confidentiality clause include a whistleblower immunity notice. Failure to include this notice does not invalidate the clause, but it limits the employer's ability to recover exemplary damages or attorney's fees in a trade secret misappropriation action under the DTSA.
Confidentiality vs. Non-Compete
Confidentiality clauses and non-compete clauses serve different purposes:
- Confidentiality clauses protect information. They restrict what the employee can say and do with sensitive data, but they do not restrict where the employee works.
- Non-compete clauses restrict employment. They prevent the employee from working for competitors, regardless of whether confidential information is involved.
In states where non-competes are banned (like California), confidentiality clauses take on even greater importance because they are the primary contractual mechanism for protecting sensitive business information.
Common Mistakes in Confidentiality Clauses
Overly Broad Definitions
Defining confidential information as "any and all information of the Company" without exceptions is likely overbroad and may be difficult to enforce. Courts expect the definition to have some limits.
No Exclusions
Failing to exclude publicly available information or information the employee already knew weakens the clause. Standard exclusions demonstrate that the clause is reasonable and well-considered.
Missing DTSA Notice
As noted above, failing to include the required whistleblower immunity notice under the DTSA can limit your remedies.
No Return of Materials Provision
If the clause does not require the employee to return materials and delete files upon termination, enforcing the confidentiality obligation becomes more difficult as a practical matter.
Ignoring Digital Information
Modern confidentiality clauses must address digital information, cloud storage, personal devices, and email. An employee who forwards sensitive emails to their personal account before resigning has potentially already breached the agreement, but only if the clause covers these scenarios.
Best Practices
- Define confidential information specifically with categories and examples
- Include standard exclusions for publicly available information and prior knowledge
- Address both disclosure and use of confidential information
- Require return and destruction of materials upon termination
- Include the DTSA whistleblower notice as required by federal law
- Make obligations survive termination for as long as the information remains confidential
- Address digital and electronic information explicitly
- Implement company-wide security measures to demonstrate reasonable efforts to maintain secrecy
A strong confidentiality clause is one of the most important and universally enforceable provisions in any employment agreement. Unlike non-competes, confidentiality obligations are respected in virtually every jurisdiction and provide lasting protection for your most valuable business assets.