Jan Dop

partner

Jan is a specialist in employment law and corporate law

jan.dop@russell.nl
+31 20 301 55 55

Employee confidentiality clause

Publication date 9 oktober 2018

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.

geheimhouding

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:

    We process the personal data above with your permission. You can withdraw your permission at any time. For more information please see our Privacy Statement.

    Related publications

    Employment contract: 8 clauses that should be included

    What may or may not be included in an employment contract, what do the various provisions mean and what do you have to bear in mind?

    Read more

    Act on the Protection of Trade Secrets

    The Act on the Protection of Trade Secrets is about to come into force. What does it mean?

    Read more

    Privacy of ill employees

    Employees have a right to privacy in their private lives. This also applies to sick employees. However, they must also comply with their reintegration obligations and provide accurate information about their illness. What options does the employer have to check whether they are actually doing this?

    Read more

    Drugs and alcohol at work: 4 recent rulings

    Employees who consume alcohol and drugs during work or who want to work under the influence remain a problem for employers. What measures can you take against this? Are you allowed to test an employee if you suspect they are under the influence?

    Read more

    3 reasons to establish a works council

    Many companies do not have a works council, even though they should. When is it mandatory to establish one? What are the advantages of a works council? What are the consequences if your company does not have a works council?

    Read more

    Discrimination during the application process

    Discrimination in the recruitment and hiring of new staff is not permitted. When do you, as an employer, discriminate during the application process, even unintentionally? And how can you prevent this, also if you use AI?

    Read more