What Is A Confidentiality Agreement In The US?

You share sensitive information more often than you might think - with employees, contractors, suppliers, investors, manufacturers, consultants and potential business buyers.

Most of the time, sharing is part of doing business. The risk is what happens if that information is copied, passed on, used to compete with you, or posted somewhere it should never appear.

A confidentiality agreement helps set clear rules before you disclose anything valuable. It doesn't have to be complicated, but it does need to match what your business is actually trying to protect.

What Is A Confidentiality Agreement?

A confidentiality agreement is a contract that says certain information must be kept secret and only used for an agreed purpose.

For businesses, the definition is practical: it's a written promise that helps protect sensitive commercial information when you need to share it with someone else. That person might be an employee, contractor, supplier, manufacturer, consultant, adviser, investor, franchisee or potential buyer.

A confidentiality agreement usually explains:

• What information is confidential, such as customer lists, pricing, recipes, software code, product designs, supplier terms or internal processes.
• Who can receive the information, and whether they can share it with employees, advisers or subcontractors.
• What the information can be used for, such as assessing a business opportunity or performing services for your business.
• How long the confidentiality obligation lasts.
• What happens when the relationship ends, including returning or deleting confidential materials.

Say you run a specialty food business and you're speaking with a co-packer about producing your sauces at scale. You may need to share your recipes, supplier details, margins and packaging specifications. A confidentiality agreement helps make it clear that the co-packer can only use that information to assess and provide manufacturing services for your business, not to make a similar product for someone else.

Confidentiality agreements are mostly governed by contract law, which can vary by state. At the federal level, the Defend Trade Secrets Act also matters if the information qualifies as a trade secret and is related to a product or service used in, or intended for use in, interstate or foreign commerce.

Is A Confidentiality Agreement The Same As An NDA?

Yes, in most business conversations, a confidentiality agreement and an NDA mean the same thing.

NDA stands for non-disclosure agreement. It usually means a contract that restricts a person or business from disclosing or misusing confidential information. Some people use the term NDA for a short standalone document and confidentiality agreement for a more detailed document, but there isn't a strict federal distinction between the two labels.

What matters is what the document actually says. A document called an NDA can be weak if it doesn't define the information properly. A document called a confidentiality agreement can be very strong if it's clear, practical and enforceable.

One-Way And Mutual Confidentiality Agreements

A one-way confidentiality agreement protects information flowing in one direction. You might use this where your business is disclosing information to a contractor, employee, consultant, manufacturer or potential buyer.

A mutual confidentiality agreement protects information flowing both ways. You might use this where both sides are exploring a collaboration agreement and both will share sensitive information.

For example, if you're developing a new app with another company, both sides may share product roadmaps, customer insights, technical documentation and pricing plans. A mutual agreement can protect both businesses without making the arrangement feel one-sided.

Confidentiality Clauses Inside Other Contracts

You don't always need a separate NDA. Sometimes confidentiality obligations sit inside a broader agreement, such as an employment agreement, contractor agreement, services agreement, supplier agreement, franchise agreement, purchase agreement or letter of intent.

This can work well, as long as the clause is detailed enough. A one-paragraph confidentiality clause may not be enough if you're sharing high-value trade secrets, source code, sensitive customer data or financial information during a sale process.

What Information Can A Confidentiality Agreement Protect?

A confidentiality agreement can protect information that isn't public and has commercial value to your business.

Common examples include:

• Customer lists, lead lists and CRM exports
• Supplier names, pricing, rebates and logistics terms
• Business plans, pitch decks, forecasts and budgets
• Recipes, formulas, product specifications and prototypes
• Software code, technical documentation, algorithms and product roadmaps
• Marketing plans, launch strategies and ad performance data
• Internal policies, playbooks, training materials and standard operating procedures
• Unreleased creative work, designs, copy, photos, videos and course content
• Employee, contractor and payroll information
• Deal terms, acquisition discussions and investor materials

A confidentiality agreement generally won't protect information that's already public, independently developed by the recipient, lawfully received from someone else, or required to be disclosed by law.

It's also worth separating confidentiality from ownership. A confidentiality agreement can stop someone from sharing your unpublished product designs, but it doesn't automatically prove you own the copyright in those designs. A contractor agreement may also need an intellectual property assignment or invention assignment. Copyright can be protected under the Copyright Act, while trademarks are handled through federal trademark law and USPTO practice. Confidentiality helps with secrecy, but it isn't a substitute for getting your ownership and IP registrations right where they matter.

If the information includes personal information about customers or employees, confidentiality is only one part of the picture. You may also need privacy, security and data handling terms that reflect federal, state and industry requirements.

How Do Confidentiality Agreements Help Protect Trade Secrets?

A confidentiality agreement helps protect trade secrets by showing you treated the information as secret and placed clear restrictions on its use.

Under the Defend Trade Secrets Act, a trade secret is generally information that has independent economic value because it's not generally known, and that you have taken reasonable measures to keep secret. Many states also have trade secret laws based on similar principles.

That means the agreement is helpful, but it isn't the whole story. If you mark everything as confidential but freely share it across your business with no controls, you may struggle to show you took reasonable measures to protect it.

Practical Steps That Support Trade Secret Protection

You can strengthen your position by combining the agreement with simple internal controls, such as:

• Sharing sensitive files only with people who need them for their role
• Using access permissions for folders, software and cloud storage
• Labeling sensitive documents as confidential where it makes sense
• Keeping a record of who received important information and when
• Using secure systems instead of personal email or messaging apps for key documents
• Running exit processes for employees and contractors, including return or deletion of business information
• Training your team on what they can and can't share outside the business

For employees, contractors and consultants, the Defend Trade Secrets Act has a specific notice issue. If you want to seek certain enhanced remedies under that law, your relevant agreements should include notice of the law's immunity provisions for certain confidential disclosures to government officials or attorneys, and in sealed court filings. This is a technical drafting point, but it's one worth getting right if trade secrets are important to your business.

Employee confidentiality clauses also need to be drafted carefully so they don't stop workers from discussing pay or working conditions, reporting concerns to government agencies, or using rights they have under laws such as the National Labor Relations Act. State law and industry rules can also affect what you can include, so tailored drafting matters here.

What Clauses Should Your Confidentiality Agreement Include?

Your confidentiality agreement should include clauses that clearly identify the information, control how it can be used and explain what happens if the rules are broken.

Templates can be a useful starting point, but they often miss the details that make the agreement fit your business. A good confidentiality agreement should usually cover the points below.

1. The Parties

Name the business or person disclosing the information and the business or person receiving it. If affiliates, employees, contractors or advisers may access the information, say that clearly.

2. The Purpose

Explain why the information is being shared. This is one of the most useful clauses because it limits what the recipient can do with the information.

For example, if you're sharing financials with a potential buyer, the purpose might be assessing a possible purchase of your business. That doesn't give them permission to use your customer data for their own marketing.

3. The Definition Of Confidential Information

Define confidential information broadly enough to cover what you need, but not so broadly that it's unrealistic. You can include written, oral, visual, electronic and observed information.

If certain categories are especially valuable, name them specifically. Examples might include source code, customer data, pricing, manufacturing methods, recipes, prototypes, product plans or investor materials.

4. Exclusions

Most agreements exclude information that's already public, already known by the recipient, independently developed, lawfully received from a third party, or required to be disclosed by law.

These exclusions are normal. They help make the agreement more balanced and easier to enforce.

5. Use And Disclosure Restrictions

This clause should say the recipient can only use the information for the agreed purpose and can't disclose it except as allowed by the agreement.

If the recipient needs to share information with staff, advisers or subcontractors, the agreement should require those people to be bound by confidentiality obligations too.

6. Security Measures

For sensitive information, include practical security obligations. These might cover password protection, restricted access, secure storage, no copying except as needed, and prompt notice if information is lost or accessed without permission.

If personal information is involved, you may also need privacy and data security obligations that go beyond a standard confidentiality clause.

7. Return Or Deletion

Say what happens when the purpose ends or you ask for the information back. The recipient may need to return documents, delete files, destroy copies and confirm in writing that they've done so.

You may also want limited exceptions for automatic backups, legal recordkeeping or professional obligations, as long as confidentiality continues.

8. Duration

The agreement should say how long the confidentiality obligations last. For ordinary business information, a fixed period may be appropriate. For trade secrets, the obligation often continues for as long as the information remains a trade secret.

State law can affect whether a particular duration is enforceable, especially in employment settings. If you're dealing with high-value information, don't guess on this point.

9. Remedies And Governing Law

The agreement should explain what remedies may be available if someone breaches it, such as damages, injunctive relief, recovery of costs where allowed, and other contract remedies.

It should also say which state's law governs the contract and where disputes will be handled. This doesn't mean every clause will automatically be enforceable, but it gives the parties a clearer starting point.

Frequently Asked Questions

Can I Use One Confidentiality Agreement For Employees And Contractors?

Sometimes, but it's usually better to tailor the document to the relationship. Employees, contractors, consultants and suppliers can raise different issues around access, ownership of work product, data handling, exit steps and permitted disclosures.

Do Confidentiality Agreements Expire?

They can, depending on what the agreement says. Some obligations run for a fixed period, while trade secret obligations may continue for as long as the information remains secret and valuable.

Can I Protect Information Shared Before The Agreement Is Signed?

It depends. You can include wording that covers earlier disclosures, but it's stronger to have the agreement signed before sharing sensitive information. If you've already disclosed something valuable, get tailored advice before relying on backdated protection.

What If Someone Refuses To Sign?

You don't have to share sensitive information with someone who won't agree to reasonable confidentiality terms. You can also share information in stages, starting with less sensitive details and only disclosing more once protections are in place.

Key Takeaways

• A confidentiality agreement is a contract that controls how sensitive business information can be used and shared.
• An NDA and a confidentiality agreement usually mean the same thing, but the wording matters more than the title.
• Confidentiality agreements can protect customer data, pricing, business plans, software, recipes, designs, deal information and trade secrets.
• Trade secret protection is stronger when your agreement is supported by practical security steps and limited access.
• Employee and contractor confidentiality clauses need careful drafting so they don't conflict with federal rights, reporting protections or state law.
• The best agreement is specific to your business, the information being shared and the relationship with the recipient.

If you'd like help with drafting or reviewing your confidentiality agreements, protecting trade secrets, or setting up practical confidentiality processes for your team and contractors, you can reach our team at (888) 449-8437 or team@sprintlaw.com. Where legal services are required, they're provided by licensed US lawyers at ElevateNext US, LLC, a trusted US law firm, through the Sprintlaw platform.