Contracts are the lifeblood of many modern businesses. They connect an organization with services from outside companies and labor from skilled employees. They help lock in delivery schedules and prices for necessary supplies. Contracts provide access to leased commercial spaces. They help clarify business relationships. They also allow one company to take legal action when another violates an agreement.
Every working relationship between a business and a professional or another organization is an opportunity for growth. However, those working relationships are also a source of organizational exposure. Employees, independent contractors and other companies can sometimes disclose information obtained by doing business with a company to others.
That disclosure could cause real harm to an organization. Confidentiality clauses and non-disclosure agreements can help protect a company from unfair competition and reputation damage. What types of contracts may require confidentiality agreements?
Employee contracts
When hiring a new worker or promoting an existing one, an organization may need to request non-disclosure of certain information. Employees often have access to trade secrets and important information about how a company operates. If they publicly share that information, the company could suffer brand damage or become less competitive. Non-disclosure agreements are popular inclusions in employee contracts to help protect a company’s reputation and its trade secrets.
Vendor and service provider contracts
Agreements with outside businesses can help a company manage daily operations. Organizations may outsource payroll because they aren’t big enough to warrant an in-house accountant. They may rely on a vendor to provide them with the chemical components necessary for a proprietary manufacturing process. The information that service providers and vendors have about how a company operates can affect how other people view the organization. Those outside parties may also be able to reverse engineer certain trade secrets using what they learn about company operations. Requiring confidentiality from businesses that supply goods or services to an organization can help protect trade secrets.
Agreements when planning mergers and acquisitions
It is standard for companies to share quite a bit of information with potential buyers in an acquisition. Those discussing mergers may also reveal certain sensitive information. Typically, any parties involved in the negotiation or due diligence processes have to sign agreements ensuring confidentiality, especially if the transaction isn’t successful.
Adding the right terms to new contracts can help a company maintain its trade secrets and competitive edge. In cases where another party violates those agreements, a contract lawsuit can deter future violations and lead to financial compensation. Integrating the right terms into certain contracts and consistently enforcing business contracts can help companies avoid setbacks caused by the misconduct of outside parties.