Confidentiality Agreements

What is the Intent of Confidentiality?

Often, confidentiality is necessary for a business transaction such as a merger that is being negotiated or for a new business idea that is being developed. A confidentiality agreement in such cases ensures that nonpublic information that would be harmful to that legitimate business activity is not disclosed. At some point, however, confidential information must be often disclosed—the merger is announced or the business idea is patented or introduced. When the intent of a confidentiality agreement is to protect a legitimate business activity until it is ripe for appropriate public scrutiny, then it is likely to be ethical and legitimate.

Sometimes, however, confidentiality agreements constrain legitimate activities or protect illicit behavior. There is no moral obligation for an employee or another organizational stakeholder to maintain confidentiality for unethical behavior. Also, to the extent that confidentiality agreements make it unreasonably difficult for an employee to leave one employer to work for another or for information about an unsafe product to be made public, they may similarly be ethically suspect.

In short, the intent behind confidentiality agreements matters. Confidentiality can support legitimate business activities that would be harmed by premature public disclosure. But confidentiality can also shield businesses from legitimate scrutiny or keep employees from pursuing other job opportunities.

Confidentiality and Duties of Loyalty

Behind legitimate confidentiality agreements are usually duties of loyalty. The employee who is negotiating a merger or working on a new project owes a duty of loyalty to her or his employer. The confidentiality agreement puts this duty of loyalty in writing, but the duty of loyalty precedes the agreement and stands whether or not such an agreement exists.

There are also duties of loyalty owed to shareholders. Mergers and the development of new products have financial implications. When employees, for example, possess nonpublic information, there is a danger that they will engage in inside trading. Such activities violate duties of loyalty owed to their corporations and shareholders in those corporations. Confidentiality agreements are legitimately used to prevent such sorts of opportunistic behavior.

Confidentiality Agreements in Context

Confidentiality agreements are used in a variety of business situations. When there is business value in maintaining confidentiality, then such agreements are useful and legitimate. There will be, however, some situations in which the use of confidentiality agreements leads to ethically problematic outcomes.