What is a Confidentiality Clause?

The success of many companies often hinges on a secret formula, an exclusive client base or a patented process. In order to protect these vital secrets, companies routinely add a special addendum to hiring contracts called a confidentiality clause. This is a legally binding agreement between employers and employees which assigns severe penalties if certain secrets are revealed. Participants on game shows or personal assistants to celebrities may also be asked to sign this type of clause.

The penalty phase of this type of clause is usually financial in nature, although the employer may seek other forms of relief in court. Typically, a confidentiality clause for contestants on a reality game show would assign a multi-million dollar fine if anyone revealed the eventual winner to the press. Since very few contestants could afford such a financial blow, they usually remain silent until the information is no longer considered secret. Employees of celebrities may also face substantial fines if they divulge personal information about their famous employers.

In the corporate world, a confidentiality clause offers protection against former employees who might use confidential information at a new workplace. This doesn't mean an engineer cannot draw on his general work experiences elsewhere, but he or she cannot take photographs of specific machines or use secret formulas or processes. A clause for confidentiality alone cannot force former employees to forget names on a client list or the contact information for suppliers. What it can do is provide enough financial and legal incentive to discourage former employees from using 'objective' information gathered from the job.

One difficulty with a confidentiality clause is enforcement. It is always possible that a company's secret formula may be revealed by someone other than a former or current employee. In order to prevail in court, an employer would have to have compelling evidence that a specific employee violated confidentiality. They would also have to establish that the employee revealed truly confidential information, not merely a basic process or non-exclusive formula.

Another problem employers may face with a confidentiality clause is the true effectiveness of financial penalties. While a maid working for a celebrity may not be able to afford a $4 million fine for revealing intimate details, a top chemist for Coca-Cola might not feel so threatened. The financial penalties connected with breach of a confidentiality clause must be commensurate with the level of potential damages. A disgruntled contestant on a game show might decide to reveal the winner's name regardless of the clause. Even if the producers successfully sue for a $4 million fine, the potential damage to the show's commercial appeal could be much higher.