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As the authoritative force in Employment and Labor Law today, we strive to provide our unusually motivated® readers with tips, training, guidance, and counsel that help them to stay ahead of the game. As a preliminary matter, it’s the wish and goal of every person to protect their interest in every confidentiality agreement. However, how do you achieve that? It’s at this point that we step in to provide you with a hands-on guide regarding those clauses that must be incorporated in that confidentiality agreement so that you can protect your interest. For this reason, we’ve prepared for you a fresh video titled “The 5 Key Clauses For Every Confidentiality Agreement,” which is accessible through the link provided at the end of this blog.

What’s A Confidentiality Agreement and Why Do You need it?

To have a grip of what we’re talking about, let’s begin with an example scenario. Let’s say that you are an ecommerce company and have the prospects of expanding globally. However, to do so, you have to bring on an investor and/or partner to your business. Before entering into a contract with a potential partner or investor, you’ll have to reveal and share sensitive and proprietary information regarding your business with them. Such information may include the Company’s financial records, customer information, business deals or investment with other partners, employee records and payrolls. Without doubt, you have the legitimate interest to protect such information at all costs and make sure that the other party doesn’t use it without your approval, or outright steal it. How do you do that? By signing a confidentiality agreement with them. As such, in layman’s terms, a confidentiality agreement is a pact, usually written, that parties sign on to protect the integrity, privacy, or secrecy of any information shared or matters being discussed and agreed upon.

What Clauses must this Confidentiality Agreement Incorporate?

From a legal perspective, entering into a confidentiality agreement is a sober way to plan for contingencies so that you don’t have to deal with them in the courtroom. Per se, an exhaustive contractual agreement speaks for itself and, thus, in case problems arise and you find yourself in the courtroom, it will answer all your questions and defend you.

That being said, we now hammer on the 5 clauses that must be incorporated in every confidentiality agreement you make with another party.

Authorized Purpose Clause

This clause sets straight the purpose and extent to which the other party is permitted to use any information or data shared or revealed during the signing of the confidentiality agreement. Naturally, you may want to keep this leeway as narrow as possible and ensure your confidential information is not used for other purposes other than the one agreed upon. Also, you don’t want to leave any gaps that would permit them to use your proprietary information for their personal interests or gains.

Return & Certify Clause

The second clause revolves around the use of language that discusses the returns and certification of the confidential information. Let’s use an example to explain what this means. Assume that at the end of your deliberations with the potential investor, you realize that you cannot agree with their terms of the investment into your business. Probably, they are asking to be included as an assignee of your brand as part of investing in your business. Unfortunately, you cannot agree to that and, thus, the deliberations reach a stalemate. At this point, you should already have a provision in the confidentiality agreement, which states that at the end of the deliberations, the receiving party must give back any proprietary information shared with or provided to them and certify its return through another medium. If the receiving party doesn’t return the confidential information within the agreed period, then you, the disclosing party, can sue them for a breach of contract.

Indemnification Clause

This is the third clause and a trendy provision in a contractual agreement. By definition, indemnification is a fancy pants terms for a legal right for the other party to do something – a legal right to cure you. You can also perceive it as a security against legal liability for individual actions. If the receiving party decides to screw things up and establishes that they are the source of the mess that has caused you to incur damages, they are required to indemnify you contractually – the clause requires them to cure or remedy the situation and incur any costs involved. However, while the mess must be traceable to them, the damages should also be articulable.

Non-Circumvention Clause

Just as the words suggests, the non-circumventing clause mandates that no party can look for a way around the confidentiality agreement in a deceptive manner and, thus, harm the interest of the other or benefit in a way unrelated to the terms of the initial contract.

Prevailing Party’s Fees Clause

Finally, this is the last clause and a must-have in every confidentiality agreement contract. While this is basically attorneys’ fees, it’s only given to the prevailing party (whoever wins in a court). Well, here is the real deal about this. In the United States, there’s a general rule that unless the contract says otherwise or unless there exist a statute of point, you don’t reserve the right to collect your contract damages in litigation. This implies that if it’s a case of a breach of contract, the rule is that every party is responsible for attorney’s fees, unless the contract says otherwise or there’s a statute that can be referenced to. In order to circumvent these issues, we simply put in the confidentiality agreement that the prevailing party is entitled to recover the fees.

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