Employee confidentiality clause

A confidentiality clause can be contractually included, and can often be found in an employment contract or settlement agreement. It is convenient to link a penalty clause to the confidentiality obligation. Such a clause has the purpose to prevent the employee from sharing confidential information, such as business secrets, with third parties.

How important is a confidentiality clause in an employment contract or settlement agreement and how can it be maintained by the employer?

A confidentiality clause is included in many contracts and agreements between employer and employee. The purpose of such a clause is to ensure that the employee does not share confidential information with third parties. By including a confidentiality clause, it is brought to the employee’s attention to keep confidential information to himself. In addition, a breach of these confidentiality obligations is often linked to a penalty clause.

An employee confidentiality clause can be included in:

• an employment contract
• a settlement agreement

Employment contract

Aim and purpose

The purpose of a confidentiality clause in an employment contract is to ensure that the employee does not share confidential information/business secrets with others, such as a competitor for instance. This obligation applies both during and after the termination of employment. And this will have to be explicitly included in the employment contract. Both the employer and employee have to agree clearly upon what this obligation includes, so that the employee knows exactly what his obligations are. For instance, it can be provided that confidential information may be shared with colleagues. For the definition of business secrets the new Act on the Protection of Trade Secrets can be used.

No confidentiality clause?

A confidentiality clause is not provided for by law. This means, parties are free to give form to this clause and it could, for instance, be agreed upon orally. Of course, it is preferable to document it even if it is just to prove that arrangements were made about confidentiality.

However, if no clause has been agreed upon, it does not mean that employees are free to share information with third parties. The employee must act as a “good employee” within the employment relation. This means, he or she has to refrain from:

• disclosing business secrets
• making statements that could put at risk or cause damage to the competitive position of the employer.

Sanction

A penalty agreed upon or included in the contract is often the sanction for a breach of the confidentiality obligation. Other options may be:

• a warning or reprimand (in the personnel file)
• damages
• suspension
• dismissal (with immediate effect).

In practice, a penalty clause where the employee must pay a fixed amount for each violation is often used. A penalty clause has a great advantage over damages: the employer does not have to prove that (1) he has suffered damage and (2) what the extent of the damage is. The amount of the penalty may be mitigated by the court however.

Settlement agreement

A confidentiality clause in a settlement agreement is often different. Here, employer and employee usually agree that they will not disclose anything about the nature or content of the settlement agreement. The employer’s interest is that other employees do not gain insight in what has been agreed upon and will use this to claim the same conditions in negotiations. An employee might also have an interest in a confidentiality clause, for instance because he does not want the reason for the termination of the employment to be disclosed.

Sanction

A settlement agreement may also include a penalty clause where the employee (after termination of employment) has to pay a fixed amount.

Our advice

• Make sure to always include a confidentiality clause in an employment contract or settlement agreement.
• Agree clearly and concretely upon what the confidentiality obligation does include.
• Link a penalty clause to the confidentiality obligation.

More information?

Do you have any questions regarding confidentiality clauses in different contracts? Do you want us to draft a standard confidentiality clause or a model employment contract? Please contact us: