HR Confidentiality Agreement Explained
HR confidentiality agreements are written contracts made between a company’s human resources department (or HR employee) and an individual employee. The purpose of these agreements is to ensure that all employees remain mindful of their obligations when they have access to confidential information, as defined by the terms of the agreement itself.
For most businesses operating on a nationwide level, especially those in online-oriented spaces, information about operations, finances, intellectual property, customers, etc. is extremely important to the success of their model. Even companies that don’t conduct business across state lines often consider information about their employees, clients, products, etc. to be confidential , sensitive and private. To protect confidential information from getting into the hands of media figures or competitors, HR confidentiality agreements are put in place.
Examples of sensitive data that would potentially be covered by an HR confidentiality agreement include:
Per the terms of an HR confidentiality agreement, the individual agrees not to make any disclosure to any outside, unauthorized parties under the threat of facing legal action. The HR department, or other authorized personnel, will typically have access to the information covered under the agreement. It is also possible for an HR confidentiality agreement to be part of a larger employment contract, which may cover a range of items regulated by a paid job with a company.
Components of an HR Confidentiality Agreement
When considering an HR confidentiality agreement, you should have some essential components present within the agreement. First, the parties to the agreement should be identified. In most cases, the parties to the agreement will be the company and the employee (or former employee). Sometimes, the agreements could also involve third parties (such as vendors or shareholders) but from a human resources perspective, the typical case will be between employer and employee.
Second, what information is being protected? Encompassed within the information could be all confidential or proprietary information whether in written form, electronically maintained, oral information, in any part of a work product or even in the form of trade secrets. As long as the information has been treated as confidential or proprietary by the company, it can be protected specifically within the agreement.
Third, how long is the information subject to confidentiality? Typically the standard duration is three years; however, that is not an absolute and can be any duration as long as it is reasonable under the circumstances. You should also consider including a carve out that describes what is not confidential. Many times individuals believe information is confidential simply because it was treated that way during the employment relationship. We have all worked for companies that claim everything to be confidential. To the extent it is not a trade secret (an idea, process, formula or configuration that provides a competitive advantage and cannot be easily replicated), after working at a company for many years, the seemingly secret information is no longer secret or confidential.
Consequences of Breaking a Confidentiality Agreement
Both employers and employees have legal responsibilities, which may be laid out in the organization’s HR confidentiality agreement or in other documentation. If a current or former employee violates the terms of an HR confidentiality agreement, it could result in legal action being taken.
Various legal actions: If an employer believes that a current or former employee has violated the terms of the HR confidentiality agreement, it may decide to take a number of legal actions against the employee. These may include:
Examples of legal action: An example of legal action being taken is one that involved a former television news anchor at the Fox Detroit station. It was alleged that the anchor "lost important documents, including W-2 information on all of the station’s employees." In response, his former employer sued him, seeking to enforce the confidentiality and non disparagement provisions of his contract, as well as suing him for negligence and breach of fiduciary duty.
The former employee "pleaded no contest to a personal protection order violation, was investigated for a federal tax crime related to the lost paperwork and entered a post indictement settlement with the revenue service, with an understanding she couldn’t discuss or instruct anyone else to discuss with her lawyer the contents of the settlement."
In another case, the Office of the United States Attorney for the District of Maryland announced the guilty pleas of two former employees of a company for violating the secrecy provisions of the United States espionage laws. "Both men had worked as leafing clerks for a defense contractor that performs work for the Department of Defense and Oak Ridge National Laboratory regarding submarine propulsion systems." The subject matter was "considered highly sensitive," and therefore, the employees were required to sign non-disclosure agreements. In doing so, they acknowledged that "a violation of the agreement by any person to whom they disclose classified information could result in a maximum of ten years of imprisonment." United States District Judge Catherine C. Blake sentenced one defendant to ten months of home detention and one year of supervised release; the other defendant was sentenced to six months of home detention followed by one year of supervised release.
Advantages of Having a Confidentiality Agreement
One of the most significant advantages of using HR confidentiality agreements is the protection of a business’ valuable trade secrets. Trade secrets generally include all confidential and proprietary information (e.g. methods, formulas, patterns, data compilations, computer programs, customer lists, market and sales information, and the like) that provide a competitive advantage for a business that is not generally known by or available to its competitors and has economic value. Thus, the protective measures implemented by confidentiality agreements are critical to the long-term success of a business.
In addition to protecting trade secrets, implementing HR confidentiality agreements can play a key role in helping a business foster a culture of trust and security. For instance, having access to their company’s confidential business information can instill greater confidence in employees and management regarding information security protocols. A confidential agreement can also promote productivity by encouraging employees to continue to create value for the company, knowing that the company can legally take action to prevent improper use of their work product by former employees. Along similar lines, confidentiality agreements can help by underscoring the fact that the harm caused by the breach of confidential information would impact not just one employee but the entire company.
How to Create an Effective HR Confidentiality Agreement
Drafting a comprehensive and legally binding HR confidentiality agreement begins with a thorough consideration of the issues at hand. A common starting point is to assess the types of company information employees will have access to and the potential risks posed by their access. It is crucial to understand the business’s own confidentiality needs, as well as differentiate between information the business considers secret and that which is basic to everyday operations. Companies should also consider the level of potential harm that a breach would entail. For example, in the bank industry, employee information such as social security numbers and protected health information is extremely sensitive. However, the routine password an employee uses to open a computer can hardly be considered confidential.
Once a company has identified the types of confidential information it possesses, it is essential to make a clear demarcation between information that does not typically require protection rights and information that is proprietary and must remain secret for the benefit of the company. While in most cases an employee’s routine knowledge about the basic functions and activities of a company does not require protection, an agreement is necessary in cases in which the employee has control over proprietary information. This typically includes information such as trade secrets, customer lists, and sales techniques.
Keeping in mind the information that should be protected, a company can then begin drafting their agreement . This is an important step because at-will employment rules vary widely by state, and a poorly written HR confidentiality agreement may detract from the stability of the employer-employee relationship. While it is not necessary for businesses to draft their HR confidentiality agreements based on model contracts, using a basic template can help to organize and cros-reference the information that will be included.
Since HR confidentiality agreements are an accepted part of almost every business, there are several clauses that have become standard. Besides a mandate to keep all company information secret, clauses usually include a non-compete provision that will keep an employee from passing information to their new company. However, in today’s world, where it’s harder than ever to stop employees from storing business information on their smartphones, tablets, or computers, using up-to-date language that will cater to the digital age is especially important. An example of this is reference to "information stored or transmitted in any electronic form." The use of outdated terms such as "photocopying" can be counterproductive.
When drafting a comprehensive HR confidentiality agreement, it is important to consult with a legal professional. Doing so will not only help to prepare legally defensible language, but can also assist in ensuring that a company’s individual HR confidentiality agreement provides the necessary protections while avoiding being overbroad.
Difficulties in Upholding Confidentiality Agreements
Challenge 2 – When Information Is Commonplace in The Industry
How DO You Protect Confidential Information When It Is Commonplace In The Industry? This question is often asked of me when I help companies that maintain certain confidential information about their products or processes that are common to the industry in which they participate.
Example. As an example, the following types of information are considered commonplace in most of the chemical industry:
The real challenge of the lack of uniqueness in this information comes to the surface when a company’s employee goes to work for a competitor with the same or similar information. Often times, despite solid confidentiality agreements in place between the company and employee, there are challenges in ensuring that the confidentiality obligations are followed.
What can be done? Typically, I would recommend several strategies:
There is no substitute, however, to the company’s enforcing its confidentiality agreement when it is infringed. I have seen clients take the above strategies, but fail to enforce the agreement, which is really at the heart of the problem. If you have confidentiality agreements in place (and you should have them), use them. Have a process in place within your human resources department to immediately interview employees that leave the company in order to remind them about their confidentiality agreements and how they will be enforced. If you notice problems, investigate and enforce the confidentiality agreements. Unfortunately, you will not eradicate the problem of leak of confidential information, but you may be able to at least reduce the number of instances.
Common Questions Regarding HR Confidentiality
1. What types of information are subject to HR confidentiality?
There are no legal exemptions from the general rule that information must be kept confidential by employers (and all others) unless there is a statute or a defence of public interest that overrides the obligation to keep it confidential. However, even though there is no general exemption from the confidentiality rule, there are differences between types of information (e.g. personal information, proprietary information, confidential business information). That distinction is based on the strength of the legal basis for the confidentiality. On this continuum, acceptable discrimination in favour of one kind of information against another might be acceptable (with respect to individuals) in determining what information would be protected in the employment context. In other words, "personal information" has a lower bar to protection than "business confidential information" even though both would ordinarily be subject to confidentiality protection.
2. What is the level of agreement required for an HR confidentiality agreement?
It depends on the kind of information and its sensitivity. The more sensitive the information, the higher the threshold for giving it away or accepting a disclosure obligation in an agreement. Conversely, if the information is not particularly sensitive, the obligation to enter into an agreement gives way more easily to release from any further obligation.
3 . With respect to HR confidentiality in the employment context, when would an employee be asked to provide an undertaking to deal with HR confidential material after separation from the employer?
An employer will seek a release both during and after employment if the nature of the confidential material is particularly sensitive or if the nature of the employee’s position with the organization renders the employee responsible for such information. Even if the nature of the information is less than highly sensitive, an employer may still ask that an employee provide a release from obligations dealing with confidential information since the risk to the business might be increased as a result of the employee’s separation from the organization. This would be the case where the employee’s access to information and/or authority within the organization enhanced the risk to confidential information being released inappropriately.
4. What could go wrong with the absence of HR confidentiality agreements?
The risk to an organization without confidentiality agreements is that it may be exposed to unauthorized disclosure of information, whether in the context of an employment termination or in circumstances where confidential information is at play. Any time there is a concern over such information, organizations need to be mindful of the risks in determining the scope and limitations of a termination of an employment relationship. When confidential information is in play, an organization may choose as part of the business assessment of the risk to impose some restrictions on the employee who may be privy to confidential information during the period of his/her employment. This could include limits on the employee’s right to disclose information about the organization (internally or externally), if the employee is a representative or spokesperson for the company.