The majority of small businesses probably don't need a policy addressing employees' access to and dissemination of confidential information or trade secrets. Whether you need a confidentiality policy will depend upon what type of information you feel you need to protect. For some businesses, noncompete agreements may be necessary to prohibit employees from working in a related business in your area for a certain length of time.
Has your business spent a lot of time and effort developing its customer lists, highly specialized operating procedures, or some revolutionary technology or product? If so, it may be a wise course of action to have a confidentiality policy in place to protect your information or products from possible competitors.
Some employers choose to make noncompete clauses part of their confidentiality policy that employees are asked to sign. Alternately, employees may be asked to sign noncompete agreements that are discreet, separate documents.
Before you decide whether you really need a separate confidentiality policy for your employees you'll have to determine if you have information that is actually "secret" to be protected.
Employers can have a hard time knowing what they should consider secret. It's hard to control employees' access to information and equipment unless you know what you're trying to protect.
In deciding what's confidential about your business, look at:
Specific items to protect. Some specific items that can be protected by a confidentiality clause or agreement include :
Customer and client information. Another type of information that you may want to protect is sensitive customer or client information. In certain industries and professions, your employees may become privy to information that you and your customers or clients would not want to be made public. If this is true for your business, you may want to consider a confidentiality policy to protect it.
Once you have an idea of what you want to protect, if anything, you can better devise a strategy for how to protect confidential information.
The type of information that you're trying to keep secret, and how many employees have access to it, will play a role in deciding how you choose to handle confidentiality issues.
There are some basic steps you can take to protect your business's information. Some of these steps may seem too drastic for your purposes. Use only those that you feel are necessary and that will achieve a degree of security with which you are comfortable. These are also good steps to take in developing your confidentiality policy:
If you decide to have a confidentiality policy, you need to specify exactly what you're protecting and what you consider confidential in order to prevent current or former employees from later claiming that they did not realize that the information they were using, sharing, etc., was protected.
The clause following is an example specifying what is considered confidential for purposes of nondisclosure.
The term "Confidential Information" means information, not generally known, previously acquired by XYZ Corporation and/or which may be acquired by the employee and/or XYZ Corporation during the period of the employee's employment by XYZ Corporation, relating to products (whether existing or under development), the business activities of XYZ Corporation, technology, or its inventions.
Consideration may be required. Consideration is a legal term that refers to the "thing of value" that passes between parties to a contract. In the case of an applicant, getting the job might be considered adequate consideration. If the employee has been working on a project and you decide that the employee's research or work is confidential, consideration might be continuation of employment or a bonus of some kind.
For the agreement to be binding, the bonus or other consideration must be enough to reasonably compensate the employee for what he or she is giving up by signing the agreement. A $250 bonus, for example, may not be enough.
The examples below demonstrate how to build the consideration for the employee into the agreement or policy.
Example 1: In consideration of my employment by the XYZ Corporation and of the further continuation of such employment, and of the salary or wages paid to me in connection with such employment and for other good and valuable consideration, I agree as follows:
Example 2: In consideration of the above nondisclosure and noncompete agreement and in an effort to avoid possible conflicts and unethical actions, XYZ Corporation employees are required to read and confirm that they are familiar with these policies and that they have no knowledge of any violations of these policies.
Including remedies and damages statements. If you're concerned enough about confidentiality in your business to have a policy, you'll want to give that policy some teeth. Make it clear to employees what the repercussions are for violating your confidentiality policy.
The example below may help you devise a set of remedies or damages that you will want to collect if you have to enforce your policy.
The employee agrees to pay liquidated damages in the amount of $___________ for any proven or admitted violation of the covenant not to compete contained in this agreement/policy.
Be aware that noncompete agreements, whether as a part of a policy or as a separate document, are difficult to enforce. Before asking employees to sign or before trying to enforce such an agreement, consult an attorney.
A noncompete agreement is either a separate agreement or a clause in an employment contract that prohibits an employee from working in a related business in your area for a certain length of time. Noncompete agreements are used to prevent an employee from using your business's confidential information.
The challenge lies in deciding if noncompete agreements are right for your business and which employees should sign them. While some consider noncompete agreements an effective way to protect the business's time, money, and resources, such agreements are difficult to enforce and are not looked favorably upon by many states' courts because they restrict an individual's choice of employment.
If you do decide to use noncompete agreements, not all your employees may need to sign one. The janitor, for example, may not have access to any sensitive information, so there's no need for this type of employee to sign such an agreement.
Employees who should be asked to sign noncompete or nondisclosure agreements are:
Be careful not to create an employment contract when you have an employee sign a noncompete agreement. You can make the signing of a noncompete agreement part of your terms of employment without creating an employment contract. It's important not to make it seem that by signing the noncompete agreement, an employee can expect to be employed forever. A noncompete agreement should apply only to one specific aspect of an employment relationship — the confidential information related to your business.
Noncompete agreements can be hard to enforce because many courts perceive them as attempts to limit an individual's ability to obtain employment. For that reason, most courts will insist that a noncompete agreement be reasonably limited in geographic scope and duration.
The Business Tools contain some sample language that you might want to consider incorporating into a noncompete agreement.
To help ensure that your noncompete clause or agreement is enforceable: