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Drafting Employee Confidentiality and Proprietary Rights Agreements
Practical Law Legal Update 2-532-4324 (Approx. 5 pages)
Drafting Employee Confidentiality and Proprietary Rights Agreements
by PLC Intellectual Property & Technology
| Published on 25 Jun 2013 • USA (National/Federal) |
Guidance on drafting employee confidentiality and proprietary rights agreements.
A company's protection of its trade secrets and other confidential information is essential to its ability to maintain a competitive edge in the marketplace. A key aspect of any intellectual property (IP) protection program is ensuring that employees enter into written confidentiality agreements with appropriate and adequate restrictions on disclosure and use of the company's trade secrets and other confidential information. If the employee may create IP rights in the course of employment, the agreement should also include appropriate provisions addressing IP ownership and assignment.
Generally, employers should require that employees sign a confidentiality and proprietary rights agreement at the start of the employment relationship:
- To ensure that the employee does not learn confidential or proprietary information or create IP before the employee is subject to confidentiality and IP assignment obligations.
- So the new employment offer serves as consideration for the obligations in the agreement, to the extent the law allows.
In the employment context, what is sufficient consideration to support an agreement varies by state. If executing the contract at the beginning of employment is impossible, employers should consider extending additional consideration when signing (for example, additional money, increased benefits or a promotion) to support the agreement.
Although employee confidentiality and proprietary rights agreements should be tailored for the employer's business needs and specific industry practice, they generally should include provisions addressing the following:
- The categories and types of confidential and proprietary information subject to nondisclosure restrictions.
- The employee's nondisclosure obligations and any other obligations concerning the employee's use of company trade secrets and confidential information, for example:
- any requirement to notify the employer if confidential information is disclosed or requested to be disclosed;
- any permissible disclosures of confidential information, and any procedures the employee must follow before disclosures;
- steps the employee must take to protect confidential information.
- Whether the obligations survive termination of employment or otherwise are for a limited duration.
- The employee's obligations on termination of employment, including the obligation to return all confidential information on termination or within a specified time frame.
- The company's ownership of intellectual property created by the employee within the scope of employment, including provisions:
- assigning to the employer all relevant work product;
- specifying that works of authorship created within the scope of employment are deemed works made for hire under the Copyright Act; and
- requiring the employee to cooperate with the employer to give effect to the IP assignment provision, including a power of attorney for this purpose.
For model employee confidentiality and proprietary rights agreements with these provisions and additional guidance and provisions, see:
For a checklist of best practices, see Drafting an Employee Confidentiality Agreement: Best Practices Checklist
Employee confidentiality agreements are a key step towards adequate protection of trade secrets and other valuable intellectual property, but they must be part of a broader program. For more information on protecting trade secrets and confidential information, see Practice Note, Protection of Employers' Trade Secrets and Confidential Information.