Good morning!
Spring has sprung and as a fellow New Englander, you
must be as happy about it as I am!
This is the fourth edition of our monthly
newsletter, so if you haven't already, please
click
here
and take a minute to tell me what you like and don't
like about it, as well as which small business legal
topics you'd like me to
address in future issues.
This month we discuss confidentiality agreements.
I'm
sure you're somewhat familiar with them, but you may
not be fully aware of
when and how to use them. Read on for the details!
Cordially,
Marijo McCarthy, Esq.
President, Widett and McCarthy, P.C.
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| 5 Tips to Protect Your Business with a Confidentiality Agreement |
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Not a week goes by without my receiving an
email from a client regarding a confidentiality
agreement. Either they are being asked to
sign one and aren't sure what to do, or they are
wondering if they should be asking someone else
to enter into an agreement.
And while these documents offer important
protection between your company and its vendors,
customers, employees and consultants, there are
a few things you want to make sure you
understand before you sign on the dotted line.
Because, after all, a confidentiality agreement
is a contract, with serious obligations,
violation of which, whether through negligent or
intentional acts, can cost you time and money in
court—time and money which could be
avoided with a small amount of advance
preparation.
Most small business owners are familiar
with the two most prevalent uses for
confidentiality agreements:
When an entrepreneur is interested in kicking
the tires of a competitor's business preparatory
to making an offer to purchase, he or she will
be asked to sign a confidentiality agreement.
When hiring a key employee who will have access
to the company's protected confidential
information, that employee will be asked to
sign.
In both of these common cases, confidentiality
agreements are obvious, routine, and an accepted
practice. Many entrepreneurs however, ignore the
need for confidentiality agreements in their
day-to-day business, as they share their
company's customer lists and business strategies
with these same vendors, customers, clients and
consultants. Any time (yes, any time) this type
of information will be shared with an outsider,
you should consider executing a confidentiality
agreement.
When you do, here are five tips on doing it
effectively:
- DO NOT sign a contract which
imposes confidentiality obligations on your
company without legal review prior to signing
the agreement. The key word in the previous
sentence is "prior." As most small business
lawyers agree, it's far easier to protect our
clients before they sign, than to get them out
of trouble after the fact!
Even more
distressing
are the myriad situations where someone else
shoves one of these contracts in front of you
which you barely glance at, sign, and hand back
without even asking for a copy of the contract
you just signed on behalf of your company. Egad,
whatever happened to asking counsel to review
all of your substantive contracts, not just the
ones with the dollar signs clearly affixed?
- DO propose a mutual
confidentiality
agreement as part of the deal. Both parties
will be protected; both parties will assume
similar obligations; and both parties will
respect the other for good business
practices.
- DO look for certain standard
exceptions from the confidentiality
obligations (if there are none, it is a
harsh, restrictive and unfairly-drafted
agreement). For example, if you have certain
knowledge of your customer—you may know
the names of your customer's clients due to an
on-going business relationship—do not
agree that you are being given that information
as confidential when it is something you already
know without the obligation of protection.
- DO NOT agree that everything
you
learn or receive is automatically
confidential; ask that confidential
information delivered to you be clearly
identified as such and that oral confidential
information be summarized in writing and given
to you in written format. Companies which take
seriously the need to protect their confidential
information know that not every single piece of
paper qualifies as such—as a business
owner you should be willing to protect the other
party's confidential information, but not extend
that definition to information which is either
already public or already known to you through
other sources.
- DO look for an expiration date
for
this obligation. Open-ended obligations are
extremely difficult to keep track of (and you
will want to create a system for tracking your
confidentiality obligations as soon as you start
to accumulate agreements). A confidentiality
agreement which has no expiration date
(different from the termination date of the
confidentiality agreement itself) is like a
ticking time bomb sitting in your file cabinet
just waiting for the right moment (or wrong
moment, from your point of view) to explode.
If properly drafted—that means tailored
for the specific situation, not just printed out
like so many boilerplate documents—a
confidentiality agreement can define a careful,
"best practices" method for small business
owners to come together and do business, knowing
that they have taken steps to protect much of
their company's precious assets. It also gives
the other party the impression that you take
your business issues seriously and adds a layer
of credibility that goes a long way in a
newly-developing relationship.
A confidentiality agreement can be a benefit
and a burden, so treat it with the care and
respect it deserves!
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| Things We Like. . . |
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This business lead comes from a client who has
survived two very tough economic years by being
resourceful in his search for sources of
business.
For years he railed about the
government's regulation of his small business
and how little government did to support the
small business community. Then came the stagnant
economy and my client learned a valuable lesson
about government: government could actually
be a source of business for his commercial
moving company!
It took some time and
effort, but he now has a steady source of new
business from the government! One source (of
many) is the U.S. Treasury. Visit www.treas.gov/topics/small-
business/index.html
and see if you can find a new source
of business.
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| About Us |
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Widett and McCarthy helps small business owners
start, grow, acquire and sell their businesses.
We
serve as "in-house counsel" . . . on-call when
needed,
but not part of the company overhead. Our best
clients understand that the relationship between
lawyer
and client is a two-way street, built on
information
sharing and problem solving.
For more information regarding
how we can help you, click here.
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Legal Tidbit of the Month
When I lived in Washington, D.C., part of the
lure of working in our Nation's capital was the
opportunity to see government at work—and
not just the United States Congress, but
agencies whose mission I had only read about in
the Wall Street Journal or the Washington Post.
One of those agencies was the United States
Secret Service (Ever find yourself wondering
about the job qualifications for a Secret
Service Agent? Could Clint Eastwood get that job
today?)
Even more hair-raising, did you ever wonder
whether the public at large could access your
confidential business information which may
reside in a government agency with whom you have
done business? So I visited the Freedom of
Information Reading Room in the U.S. Treasury
Department (these days you can do that
electronically) and learned all about the
protection of business information from the
master—the United States Government. In
the spirit of "knowing your rights", if you
decide to do business with the government, click
here and see what the
government considers confidential business
information.
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| Widett and McCarthy,
P.C.
1075 Washington Street
West Newton, MA 02465
Telephone: 617.964.5559
Facsimile: 617.964.5529
Email
Us | Visit
Our Website |
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