In today’s Freedom Friday blog and email newsletter, I want to talk about a topic that relates to some of my current clients but probably should relate to a lot of small business owners, and that’s confidentiality clauses and their enforcement. Many small business contracts have provisions for confidentiality, but there are dangers with these provisions, either because they can be drafted too broadly, or too narrowly, and create additional problems for your small business down the road. In today’s Freedom Friday blog and email newsletter, I’m talking about how to handle confidentiality clauses in your small business contracts.
Many small business contracts, especially independent contractor agreements, and even some types of lease agreements (in the trucking industry, especially) include confidentiality clauses. While this may seem like a good idea that both parties would agree to not disclose sensitive and/or proprietary information, these clauses can backfire and cause problems, especially if they’re drafted too broadly, but they can also be drafted more narrowly, and that, too, can be a problem. For instance, a poorly drafted confidentiality clause may have drawbacks including preventing you from using your own work product, limiting how you market your company’s goods or services, and a poorly drafted confidentiality clause may even limit your defenses in court in a breach of contract case.
If the confidentiality clause is drafted too broadly, there are a lot of hidden risks which you need to consider. A major hidden risk is that an overly broad confidentiality clause can affect your marketing by preventing you from mentioning clients or projects, even generally, hampering your ability to attract new business. Also, an overbroad confidentiality clause that keeps you from disclosing to “third parties” can prevent you from consulting with investors, lenders, or other advisors, and stop key negotiations. An overbroad confidentiality clause that does not have an exception for court proceedings can hinder litigation by stopping you from disclosing key facts in another case or force you to file sealed pleadings increasing your litigation costs.
So, should your small business contract include a confidentiality clause? Yes, it should, but it needs to be drafted narrowly, but not too narrowly, to protect your interests. The confidential information should be defined specifically to include certain proprietary information such as trade secrets. A confidentiality clause should also have a reasonable time limit and not last forever. Lastly, you need to have exceptions to the confidentiality clause, including disclosure to advisors (accountants, attorneys, and risk management professionals), regulators, and when necessary, in legal proceedings.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.
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