April 14, 2021

Confidentiality Agreements: What Recruiters, Employers, and Candidates Need to Know

Confidentiality agreements (CAs) are written contracts that permit an individual or organization with information it considers proprietary to disclose that information while protecting its secrecy. The person who receives the disclosure is obligated not to misappropriate, share, or steal the information, according to the terms of the CA.

CAs have taken on new importance as many companies have shifted to remote work environments, and they may also be of special importance to recruiting professionals. That’s why it’s a good idea for recruiters, HR pros, and even job seekers to take some time to understand what CAs are and how they affect employment.

Why Do Organizations Use Confidentiality Agreements?

Companies invest significant resources in developing proprietary information, and they do not want this information to be used by competitors or anyone who could damage the goodwill of the business. They also do not want to give former employees an unfair advantage if they were to use that information in a new role at a competing organization.

Companies and individuals need to have a relationship of trust with their vendors, employees, and independent contractors. CAs are detailed reminders that those entrusted with confidential and proprietary information are obligated to keep it safe and must not misappropriate it.

CAs also remind those who are in receipt of such information that they do not own it and must use it only for its intended purpose. The information must only be used appropriately (i.e., to do work for the company) and must be safeguarded and returned to the company.

Have Confidentiality Agreements Taken on New Significance in the Era of Remote Work?

The increased mobility of employees and the swelling ranks of the remote workforce, both driven by the pandemic, have heightened the risk for employers that off-site employees will become casual with their use of the company’s confidential information. CAs and procedures for remote work remind employees they are in trusted possession of confidential information and that they may not share it, misuse it, or keep it if their employment (or contract, if they are an independent contractor) terminates for any reason.

With people working remotely, employers should take care to have updated written CAs that remind employees of their duty to maintain confidentiality and return the company’s property at the end of their employment. These CAs should also clearly outline the consequences for employees who breach CAs or misappropriate confidential information, which may include monetary damages, injunctions, and other penalties under state and federal law. Updated CAs are particularly important in service businesses or product distributorships, where the cost of starting a competing business is relatively low, and in industries that are highly mobile and competitive.

Additionally, CAs and other restrictive covenants, like non-compete agreements and non-solicitation of customers and employees, can have a deterrent effect on employees or competitors crossing or coming near the line of stealing confidential information. Employees and those who would hire them to gain access to confidential information need to think twice if a potential new hire has a CA or other restrictive covenant because the new employer can also be liable for interfering with the CA.

Responsible employers take care to avoid new employees or contractors importing a competitor’s confidential information into the company because that can make the new employer responsible as a matter of law for what the employee misappropriated from a past organization. Simply put, every company should have policies that state, “Don’t take our confidential information, and don’t use or bring a competitor’s confidential information to us.”

Is the Law Around Confidentiality Agreements Changing at All?

Judges and juries do not like theft, but courts also want to be careful that people signing CAs are given fair advance warning of what is confidential and what is not and when something that was confidential ceases to be protectable.

CAs that are too broad are regularly narrowed and even invalidated by courts. This is why it is important for companies to have tightly drafted CAs and to regularly examine their CAs and security around confidential information to ensure they are protecting their rights. Copying someone else’s CA or using a template will often lead to problems, including the potential loss of confidential information, reduced goodwill, and costly legal battles.

What Should Recruiters Know About Confidentiality Agreements?

Recruiters should inquire whether candidates have CAs and inform employers of restrictions candidates may have regarding the confidential information of their current and former employers.

Recruiters can also provide value to their clients by helping them establish protocols to remind new hires to return all confidential information to their prior employers and not bring any protected confidential information to a new employer.

Examples of confidential information in the recruiting industry would include candidate information, salary history and requirements, customer information, and any data regarding placements that is not publicly available. A job that is posted online with the employer’s name ceases to remain fully confidential, but if a job is posted with just a description of the industry, the employer’s identity would be an example of confidential information because a competitor could have an unfair head start if it knew of an opening at an employer.

Jay Zweig is a labor and employment partner in the Phoenix office of Ballard Spahr. He can be reached at 602.798.5500 or [email protected].

This article is for informational purposes only and does not constitute legal advice.

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Jay Zweig is a labor and employment partner in the Phoenix office of the national law firm Ballard Spahr. He assists employers with human resources policies, confidentiality and non-compete agreements, wage-and-hour standards, FMLA, COVID-19 employment and leave law issues, whistleblower cases, sexual harassment and employment discrimination administrative charges and litigation, internal investigations, ADA matters, and OSHA citations. He can be reached at 602.798.5500 or [email protected]
https://www.ballardspahr.com/