What is a confidentiality agreement? Explanation and use

What is a confidentiality agreement? It is a unilateral declaration in which one party agrees to keep confidential information it receives secret and to use it only for the agreed purpose. Unlike a mutual confidentiality agreement, only one party signs here: the person receiving the information declares that they will remain silent. The party providing the information assumes no obligation themselves. You use the declaration when the flow of information is one-way, for example towards an intern, a hired specialist, or a job applicant getting a behind-the-scenes look.

The short answer

• What: a unilateral commitment to confidentiality, signed by the receiving party.
• Difference from an agreement: with a declaration, one party signs, whereas with a confidentiality agreement, both parties bind themselves to each other.
• When: if the information flows in only one direction and the risk lies with the recipient.
• Core: definition of the confidential information, permitted use, duration, and consequences in the event of a breach.
• Enforcement: often with a penalty clause, because concrete damage is difficult to prove.

What exactly is a confidentiality agreement?

Legally, a confidentiality agreement is a unilateral commitment. The signatory declares that they will not share certain information with third parties and will not make any use of it other than that permitted. The provider is not required to co-sign, as they do not assume any obligation. In practice, people also refer to this as an NDA, short for the English non-disclosure agreement, but the core principle is that the obligation rests with only one party.

The declaration is binding as soon as the recipient signs it and the issuer accepts it. There is no specific law governing confidentiality; enforceability follows from ordinary contract law. If the recipient fails to keep his promise, he commits a breach of contract within the meaning of Article 6:74 of the Dutch Civil Code and may be liable for damages.

Statement or agreement?

The distinction from a mutual confidentiality agreement is the core of the choice. Look at who is sharing information.

• Non-disclosure agreement (unilateral): only you share sensitive information, the other party receives it and remains silent. Example: a freelance developer is granted access to your source code and customer database to build an integration. He signs, you do not.
• Confidentiality Agreement (mutual): both parties allow each other a look behind the scenes. Example: two companies explore a merger and show each other figures and working methods. In doing so, both parties bind themselves.

A unilateral declaration is purer when the risk lies with only one party. You place the obligation where the information is going, without unnecessarily binding the provider. If you were to use a mutual agreement in such a situation, you would assume obligations that are not actually necessary.

What is in it?

A useful explanation is short but complete. It should include the following components:

1. Parties: who provides and who declares confidentiality.
2. Definition of confidential information: what falls under it and what does not (public knowledge, already known information).
3. Permitted use: exclusively for the stated purpose, for example the assignment for which the recipient has been engaged.
4. Prohibition on sharing with third parties, including own employees or subcontractors, without equal confidentiality.
5. Duration: how long the obligation applies, even after the collaboration has ended.
6. Consequence upon breach: usually a penalty clause pursuant to Article 6:91 of the Dutch Civil Code, in addition to or instead of compensation for damages.

Why a penalty clause?

Damage caused by a leak is difficult to quantify. If a competitor gets hold of your customer list, the loss of revenue is rarely easy to prove. A penalty clause solves this: in the event of a breach, a fixed amount is due, without you having to demonstrate the damage. The judge may reduce an unreasonably high penalty pursuant to Article 6:94 of the Dutch Civil Code, so keep the amount proportionate.

Also note that the declaration strengthens protection under the Trade Secrets Protection Act. That act only protects information for which you have taken reasonable measures to keep it confidential. A signed declaration is exactly such a measure and helps you later with the burden of proof.

Practical example

A webshop hires a freelance marketer to set up campaigns. The marketer gains access to revenue figures, advertising budgets, and the customer database. The information is one-way only, so the webshop has the marketer sign a confidentiality agreement with a term of three years after the assignment and a penalty of 5,000 euros per violation. If the marketer switches to a competitor and uses the knowledge, the webshop is in a stronger position than without the agreement.

Honest recommendation

For a simple situation, you do not need a lawyer. If you share limited information with a single recipient and use a proper standard declaration with a clear definition, a realistic penalty amount, and a realistic duration, you can perfectly well have it signed yourself. However, do seek assistance if a lot is at stake: involving the release of source code, recipes, a patentable idea, or a large amount of personal data. In such cases, it is worthwhile to have the definition and penalty clause drafted precisely so that the declaration holds up if things go wrong. If you are unsure whether a declaration or a mutual agreement is appropriate, have it briefly reviewed before signing anything.

Want to read more? See how to approach drafting a confidentiality agreement and what it entails to have one drawn up, or have a custom confidentiality agreement created directly

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