Too many agreements still do not contain a confidentiality clause

Yes, a confidentiality clause is advisable in virtually every employment and collaboration agreement. Even without a clause, an employee may not disclose confidential information, but with a written confidentiality clause, you specify in advance which information is secret and what the consequences of a leak are. This has a preventative effect and gives you, as an entrepreneur, a stronger instrument to address a breach and recover damages. Yet, such a clause is still missing from too many agreements.

What is a confidentiality clause?

A confidentiality clause is an agreement in which a party undertakes not to share, use, or disclose certain confidential information. You will find it in employment contracts, but also in cooperation, service, and purchase agreements. The clause is often combined with a penalty clause, so that in the event of a breach, you do not first have to prove the full damages.

A standalone confidentiality clause within a broader agreement is different from a standalone non-disclosure agreement (NDA). The NDA is typically used prior to a collaboration or acquisition, when parties are still negotiating and exchanging sensitive data.

Is a confidentiality clause really necessary?

Strictly speaking, legally, an employee is bound by good employee conduct, even without a stipulation, and may not simply leak or take confidential company information. In the past, judges have held employees liable for damages following, for example, the copying of customer or candidate files. In serious cases, an information leak can lead to immediate dismissal or even criminal consequences.

Nevertheless, a confidentiality clause remains highly recommended. The practical benefits are substantial:

• Clarity in advance: the clause describes which information is confidential and what happens in the event of a leak.
• Lower burden of proof: with a penalty clause, you do not first have to estimate the exact damages, which is often difficult in the case of an information leak.
• Preventive effect: employees and partners who are explicitly warned of the consequences handle data more carefully.

Assessing the damages resulting from a leak is rarely straightforward. Moreover, it is difficult to prove exactly what information was passed on, by whom, and to whom. A specific clause including a penalty eliminates a large part of that evidentiary problem.

Confidentiality clause versus non-compete and non-solicitation clauses

A confidentiality clause is often confused with a non-compete or non-solicitation clause, but their functions differ. A confidentiality clause protects confidential information. A non-compete clause restricts where and for whom someone may work after leaving, and a non-solicitation clause prohibits approaching clients. In practice, these clauses complement each other. Moreover, stricter legal requirements apply to a non-compete clause, meaning it does not always hold up; a confidentiality clause is generally easier to uphold.

Trade Secrets Protection Act offers additional clout

Since October 23, 2018, the Trade Secrets Protection Act has been in force in the Netherlands. This law makes it easier to take action against the unlawful obtaining, use, or disclosure of trade secrets. A judge can, among other things, impose an injunction and take measures to prevent further damage.

The law protects information only if it qualifies as a trade secret. Three conditions apply for this, which must be met simultaneously:

1. The information is secret, so it is not generally known or easily accessible.
2. The information has commercial value precisely because it is secret.
3. You have taken reasonable measures to keep the information secret.

That third condition is crucial: you cannot invoke the law if you do nothing yourself to protect the information. Reasonable measures include, for example, a confidentiality clause or agreement, limited access to files, proper database security, and clearly stating what is confidential. A confidentiality clause is therefore not only a deterrent, but also a building block for ensuring your data falls under the law at all.

Ensure that the description of confidential information in your clause aligns well with the legal definition of a trade secret. A definition that is too vague or, conversely, too restrictive could work against you in a dispute.

Practical example: a leak that could have been prevented

The leaking of sensitive information is not a fringe phenomenon. In the news, it concerns leaked appointments, leaked police information, or transfer rumors at football clubs. In the SME sector, it is more often about a departing employee taking the customer list, pricing agreements, or a quotation template to a competitor.

Suppose an account manager resigns and shortly thereafter turns out to be working for a competitor with known clients. If his employment contract contains a clear confidentiality clause with a penalty, you are in a stronger position to hold him accountable and limit the damage. If such a clause is missing, every conversation begins with a difficult discussion regarding evidence and liability. In this case, prevention really is cheaper than cure.

Drafting a confidentiality clause: what to look out for?

A strong clause is concrete and aligns with your situation. Pay attention to the following points when drafting:

• Define the confidential information as concretely as possible, in line with the Trade Secrets Protection Act.
• Determine the duration: does the confidentiality also apply after the termination of the employment or collaboration?
• Attach a fine proportionate to the importance and, if necessary, applicable per violation.
• Arrange for the return and destruction of confidential documents and data upon departure.
• Actively draw the attention of those involved to the clause and the consequences; this increases the preventive effect.

A standard sentence at the bottom of a contract is usually not enough. Therefore, have your employment contract and other contracts critically reviewed.

Frequently asked questions about the confidentiality clause

Is an employee obliged to maintain confidentiality even without a confidentiality clause?

Yes. Based on good employee conduct, an employee may not misuse or leak confidential company information. A confidentiality clause merely makes that duty more concrete and easier to enforce, partly because you can attach a penalty to it.

What is the difference between a confidentiality clause and an NDA?

A confidentiality clause is a clause within a larger agreement, such as an employment contract. An NDA (non-disclosure agreement) is a standalone contract that parties often enter into prior to a collaboration or acquisition to protect exchanged sensitive data.

Are you allowed to attach a penalty to a confidentiality clause?

Yes, a penalty clause is common and useful, because you do not have to prove the full damages first. However, specific statutory rules apply to penalty clauses in employment contracts, so have the wording checked to prevent the clause from failing to hold up.

Does the Trade Secrets Protection Act automatically protect my information?

Not without further ado. The law only protects information that is secret, has commercial value, and that you protect through reasonable measures. A confidentiality clause or agreement is part of those measures; you cannot rely on the law without your own efforts.

Does a confidentiality clause also apply after the termination of employment?

That depends on the wording. A good clause explicitly stipulates that confidentiality remains in effect even after the termination of the employment or collaboration. If that provision is missing, ambiguity may arise regarding the scope.

Have your contracts reviewed by MKB Juristen

Do you want to know if your agreements contain a watertight confidentiality clause, or tighten up an existing contract? Our legal experts review and draft contracts that align with your business and the Trade Secrets Protection Act. We also provide practical advice regarding questions about employment law and the protection of business data.

We make no secret of our services. Schedule a no-obligation intake and discover how to better protect your confidential information.