The Consequences of Breaching Confidentiality

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The Consequences of Breaching Confidentiality

To protect information that is crucial to the continued success of a business, an employer may require that some or all employees sign a confidentiality agreement, particularly if they are managerial or professional employees. These agreements typically prohibit an employee from disclosing the employer’s confidential information to another individual or to the public in general.

The goal of a confidentiality agreement is to prevent the employee from leaving his or her position and launching or working for a competing business using the employer’s confidential information, which arguably could give him or her an unfair advantage. When this situation occurs, a dispute often erupts in which the employer accuses the employee of breaching the confidentiality agreement.

Under Arizona law, trade secrets are a legitimate protectable interest that an employer is free to include in a confidentiality agreement signed by an employee. In addition, if customer information is truly confidential and inaccessible to the public, then an employer could address it in a confidentiality agreement. To be enforceable, confidentiality agreements should:

  • Spell out the types of information the company considers confidential;
  • The requirement for employees to keep such information confidential both during employment as well as beyond termination or departure;
  • The requirement for employees to surrender all confidential information upon termination or departure;
  • Notice that the company is entitled to specific legal remedies if the confidentiality agreement is breached;
  • A statement to the effect that the confidentiality agreement has no bearing on an employee’s at-will status.

However, employers may not use a confidentiality agreement to prohibit employees from reporting illegal activities, as whistleblower laws protect employees from being fired or disciplined for reporting violations.

So long as the restrictions in the agreement are not overbroad or unreasonable, a court is likely to enforce a confidentiality agreement. This means that if there is a breach of a legally valid confidentiality agreement by an employee, the business could have a claim under the Arizona Uniform Trade Secrets Act, as well as other claims, including breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty.

When employment disputes arise, you need experienced legal representation and advice. Williams Mestaz, L.L.P., is a law firm focusing on commercial litigation and business divorce. Contact us at (602) 256-9400 and schedule a time to meet with us today.

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