While many of us have heard of, and even signed, confidentiality or non disclosure agreements in the past, many of us don’t understand the full impact of these contracts. Some companies choose to use stand alone confidentiality agreements while others have them smartly inserted into other types of agreements. Let’s take a look at this very common and important type of contract.

There are two main types of confidentiality agreements: ones between two companies or a company and an individual that have come to an agreement and want to protect their interests and ones between companies and employees. The point of the confidentiality agreement is the same, no matter which kind you find yourself signing: a company has a trade secret or a private piece of information that they want to keep private. When you sign a confidentially agreement, you are agreeing to remain silent on a particular issue. The penalty for violating a confidentiality agreement can be quite stiff and can result in heavy fines and even jail time so you should never take a confidentially agreement that you’ve signed casually.

Perhaps the best known type of confidentiality agreement that is signed is between a company and another company or between a company and an individual to help protect a trade secret or even a national security issue. It could be that in the course of a partnership between a company and a second party, a trade secret, or part of a trade secret was revealed and everyone who came into contact with that information was required to sign a form saying that they can’t reveal what they learned by penalty of law.

A similar agreement is often signed by new employees at various companies. These types of agreements have even filtered down to low wage employees who are able to access specially designed computer systems that may benefit that companies’ competition if it were ever leaked. In this case, a confidentiality agreement is often slipped into the job application that you will fill out and sign to get hired. Sometimes, the agreement is signed separately on your first day of work with several other forms. Many companies try to keep these types of agreements to a minimum since it is difficult to stop the flow of information when it is being disseminated to so many people.

There are other types of confidentiality agreements, too. Often times, if you take part in a court case, you are not legally allowed to talk about what went on in court for any reason. In some court cases, you will actually be asked to sign a confidentiality agreement, while in other cases, an oral contract is made with the judge presiding over the case.

You probably don’t even realize it, but you have likely signed several confidentiality agreements over the years, and although most of them are never pursued legally, it is always a good idea to keep in mind what you’ve signed off on because the penalty for violating a confidentiality agreement is extremely tough.