“This Contract Must Be Kept Confidential” Clause – Seven Points to Ponder

“I never understood why Clark Kent was so hell bent on keeping Lois Lane in the dark.”

– Audrey Niffenegger

ACTUAL “CASE HISTORY: Many employment-related agreements contain a clause in them that say, in one set of words or another, “You agree to keep the existence of this agreement, and the terms of this agreement, confidential.” Most commonly we see such clauses in (i) employment agreements, (ii) severance agreements, (iii) retention agreements, and (iv) bonus agreements (most commonly sign-on bonuses.)

What’s the purpose of the clause? This clause is most commonly inserted into agreements when in two situations: (a) when the employer does not want other employees to know that you received “special treatment,” in fear that the other employees will want the same “special treatment,” or (b) when the employer does not want you to find out that other employees received much better treatment than you are getting, in fear you will ask for what they received. If what you received, is kept secret, then no one will know the difference.

LESSON TO LEARN: It is always best for employees to “understand the game being played,” because “Forewarned is forearmed,” “Knowledge is power,” and “It’s good to know a lawyer.” If you encounter this contract clause, you would best served if you were aware of certain points, exceptions, and possible ramifications. Here they are.

WHAT YOU CAN DO: If you encounter the “You must keep the existence of this agreement, and the terms of this agreement, confidential,” in an agreement you are given to sign, bear these seven points in mind:

1. This is entirely separate and distinct from your duty to keep your employer’s trade secrets and proprietary information confidential. You are probably familiar with your duty to refrain from divulging to others your employer’s trade secrets, business information and proprietary information. As an employee, by law you have an “implied duty of loyalty” that requires that you keep confidential your employer’s secrets.

This clause is different: it speaks only to this specific agreement, which is not a “trade secret” or “proprietary information.” This clause goes above and beyond your confidentiality obligation in the law by creating a new obligation, not previously imposed upon you by the law. By this clause, you are agreeing to keep this agreement, and its terms, secret. It is important that you understand the distinction, because if you breach this obligation, you may lose or have to repay whatever it is you are getting by this agreement: severance, a bonus, perhaps extra stock options, or some special treatment. Ouch!

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2. The three exceptions commonly seen in these clauses are that you can share it with (a) your attorney, (b) your financial advisor, and (c) your spouse or partner. Quite commonly, such a “This agreement must be kept confidential” clause will also say “except you may share it with your attorney, your financial advisor, and your spouse or partner.” If the clause in your agreement does not provide for those three exceptions, as a bare minimum, you most definitely should ask they be inserted, in the very least.

While you are at it, you should also ask that the list of exceptions be expanded to include (d) your immediate family, and (e) tax authorities, should they make a request to see it.

3. Don’t be surprised to see a requirement that those who you are permitted to share it with (attorney, financial advisor, spouse, etc.) “must agree to be bound by confidentiality.” It is quite common to see language in such a “must keep confidential” clause that says that you may show it to certain people, “but only if they first agree to keep this agreement and its terms confidential.” Must you get these people to agree to do so? In writing?

Yes, and no. Yes, technically, but in my decades in this profession I don’t think I have ever heard of any client requiring her attorney, financial advisor, spouse, etc., to maintain secrecy. And, no, I don’t really think it is ever expected by employers.

4. You should also ask that the phrase “and if required by operation of law” be inserted. “And if required by operation of law” means that if a Court orders you to disclose the agreement or its contents you may do so. Additionally, if you receive a Subpoena (“sub” means “under” and “poena” mean “penalty”) that requires you disclose the agreement and/or its contents, you should be able to disclose it. “And by operation of law” permits disclosure in both those circumstances.

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5. What if you need to go to Court to enforce the agreement; can you show it to the Court? Imagine, for the moment, that you are supposed to be paid a certain sum by this agreement, and you are not paid. Can you show the agreement to the Court in order to enforce its provisions? You should be allowed to do that, so you should ask, also, that another exception be inserted: “and in order to enforce its provisions.”

6. Understand that it would NOT be a violation of this agreement to show this agreement the employer’s Senior-most Management or Board of Directors. In certain situations, we find it helpful to bring issues related to the agreement to the attention of the employer’s Senior-most Management and/or Members of its Board of Directors. For example, if you believe that, after it is signed, a difference arises as to its meaning. In this or similar circumstance, you would not be in violation of the agreement if you share it, or its contents, with the employer’s Senior-most Management and/or Board Members. They are not “outsiders” to the agreement; indeed, they are “deemed” to know about it.

7. Just don’t share “how much you got” with colleagues, and chances are you will be all right. Like all agreements and agreement clauses, so long as the parties get what they bargained for, there is usually no problem. While, in this instance it is wise to try to expand the exceptions, and thus gain permission to, for example, show it to a Court if you need to enforce it, the law acts in a reasonable fashion and doesn’t punish minor infractions. Will you be held in violation of your obligations if, for example, you share the existence of the agreement with your brother, or your lawyer’s paralegal? Of course not. Such technical violations are not ones you should worry about. However, as an example, if you go bragging to your former colleagues about the great severance package you negotiated, you might just receive a rather nasty letter from a lawyer.

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SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. Understanding the “in’s and out’s” of common contract provisions is one important part of path to job and career success.

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.

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