Confidentiality Agreements – What You Need to Know

Business Law Notes

Winter 2009 Edition


Confidentiality Agreements – What You Need to Know When You’re on a “Need to Know” Basis

By M. Blen Gee, Jr.

Confidentiality agreements are being used by business people on an increasingly frequent basis. Here is a list of key points and useful tips:

1. If you are furnishing sensitive information to anyone other than a professional who has a duty to keep your information confidential (attorneys, certified public accountants and physicians are the principal examples), you should insist on having at least a simple confidentiality agreement in place. If your industry deals frequently in highly sensitive information, you should have a well-drafted form confidentiality agreement on file.

2. If you receive confidential information, remember that misuse of confidential information can ave very serious legal consequences. Trade secrets are protected by law and can lead to substantial civil damages awards and even criminal liability.

3. Typically, confidentiality agreements relate only to written (including digitally written) disclosures of information. However, occasionally confidentiality agreements are written to cover ‘ verbal” disclosures as well. If you disclose any confidential information verbally, you should follow this up with a letter describing the confidential information that has been provided. Preferably, you should neither provide nor receive confidential information verbally since this creates a ques ·on of proof.

4. Anything that you wish to be maintained as confidential should be marked “Confidential: When providing the confidential information, you should send a cover letter with an itemized list of e materials being provided. Keep a copy of your cover letter and the documents that you provided so that you can prove what information was provided and that it was marked as confidential.

5. Confidential information should be accessible 10 persons in your organization only on a need to know” basis. Make sure that persons receiving the confidential information understand that disclosure is grounds ‘or immediate termination.

6. All confidential information should be kept in a secure, locked location with a limited number of keys provided to only those persons having a need to know.

7. Documents stored digitally should be secured by a password at least 6 characters in length and containing numbers, capital and lowercase letters and symbols. The password should be cha ged periodically. Also, if a person w 0 was on your “need to know” list leaves the company, the password should be changed. If the information is sufficiently sensitive, encryption may be appropriate, especially if the Information is sent via email. 8. When your need for the information has ended, originals and all copies should be returned 0 the other party wi h an appropriate cover letter itemizing the items being returned. The items should be returned either by certified mail or overnight delivery service requiring a signed receipt

9. The confidentiality agreement should have provisions addressing information that is in the public domain, information that is already known to you, and information that comes to you from other, nonconfidential sources. If you receive information hat you were already aware of, you should promptly notify the other party that you ave already acquired this information from other sources.

Recent Employment Law Cases

By Sam Johnson


The Family Dollar Stores willfully violated the Fair labor Standard Act by not paying overtime to 1.424 retail store managers and is liable for approximately $35.6 million in back pay and liquidated damages and the 9th Circuit Court of Appeals affirmed the District Court’s ruling that store managers were not “executives· but rather employees who spent 80% to 90% of their working hours on manual duties and lacked any authority over hiring, firing, payor evaluations of other store employees. These managers worked an average of 60 to 70 hours per week with no overtime pay


Wal-Mart Stores, Inc. recently announced that it has agreed to pay between $352 million and $640 million to settle 63 wage and hour lawsuits filed against the retailer in 42 different states. The lawsuits accused Wal-Mart of cheating hourly workers by forcing them to work through breaks and not paying them for overtime.

The wage and hour violation settlement may set a new standard for other companies who have been failing to pay employees according to the requirements of federal labor laws.

In recent years, federal court wage and hour class action filings have surpassed employment discrimination class actions, with claims involving issues such as misclassifying employees as salaried or independent contractors. failing to pay for ‘off-the-clock” work or on-duty meal breaks, denied reimbursements and miscalculation of commissions and bonuses.


By Jean Winborne Boyles

In times of financial stress, small business owners often feel that it is necessary to put more of their personal resources into their businesses to keep the businesses going. This action is risky business! Small businesses are often S corporations or limited liability companies, and in each case, the business is a separate legal entity from the owner. Small business owners must keep their personal fiances separate from their business finances. If it is in fact – after much deliberation and professional advice – necessary for the owner to infuse personal finances into the business, it is absolutely essential that this be done in the form of a business loan from the owner to the business. The transaction must be fully documented as such.

During this time of extreme financial decline, many businesses are declining also and are at risk of failure. Small business owners should be especially careful not to yield to the temptation of putting personal wealth into a business which is not economically viable. If the business is at risk, the owners should:

  • Make sure that all owner-loans to the business are properly documented as such. This should include bookkeeping entries for the loan and any repayments to the owner. Importantly, the loan should also be documented by a promissory note with a reasonable interest rate and repayment schedule. If possible, the business should give the owner a security interest in business property as collateral for the note.
  • Avoid blending the owner’s assets with the business assets. Preserve the distinction between the business entity and its owner. Otherwise, a business creditor might be able to “pierce the corporate veil” so as to reach the assets of its owner.
  • Review all promissory notes made by the business to financial instiu tions and other funding sources. Determine which creditors of the business have security interests in the business property. Determine which business debts have been guaranteed by the owner, and which, if any, have been also guaranteed by the owner’s spouse. If both the owner and spouse have given their personal guarantee, their personal assets, including their home, are at risk if the business can no longer make payments on the business note.
  • Do not use personal retirement to fund a failing business

Summary: The owner of a failing business must make prudent decisions regarding the continued viability of the business. These decisions are best made with the advice and counsel of professional advisors.


About our Authors:


Samuel H. Johnson is the founder and senior member of our firm. He served in the N.C. House of Representatives from 1965 to 1974. He also served as a UNC Trustee, Chairman of the N.C. Local Government Study Commission, the Advisory Budget Commission of the N.C. House, and as Special Counsel to Speaker of the House of Representatives and Lt. Governor, (1975-77). He was inducted into the N.C. Bar Associations’ General Practice Hall of Fame in 2004.

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

Jean Winborne Boyles, concentrates her practice in health law, corporate law, bankruptcy and creditors’ rights, commercial leasing, antitrust and state administrative law.

DISCLAIMER: Johnson, Hearn, Vinegar & Gee, PLLC, provides this newsletter for general information only. The materials contained herein may not reflect the most current legal developments. Such material does not constitute legal advice, and no person should act or refrain from acting on the basis of any information contained In this newsletter without seeking appropriate legal or other professional advice on their particular circumstances. Johnson, Hearn, Vinegar & Gee, PLLC and all contributing authors expressly disclaim all liability to any person with respect to the contents of this newsletter, and with respect to any act or failure to act made in reliance on any material contained herein. Distribution of this newsletter does not create or constitute an attorney-client relationship between the firm and any reader or user of such information.