Reading time: 6 minutes

Contractual terms define (and set the standard for) your relationship with the other contractual party. There are consequences if you do not hold up your end of the bargain or breach the contract. If your contractual relationship involves sensitive or personal information, you need to regulate how both parties handle such information. You can do this with a confidentiality or privacy clause. Which clause you use will depend on:

  • the kind of information at play;
  • who each of the parties is; and
  • who the information concerns.

This article will explain what each clause is and whether you may need them in your contract.

What is a Confidentiality Clause?

A confidentiality clause has the same effect a confidentiality or non-disclosure agreement (NDA) has, but as part of a larger contract. To clarify, a confidentiality clause will apply to specific information that you want to keep confidential. The nature of this information, and its exchange, will depend on the kind of contract. For example, the exchange may be:

  • one-way, with one party disclosing information and the other receiving; or
  • two-way, with a mutual exchange of information between parties.

A confidentiality clause binds both parties to keep this information confidential. As a result, only the parties that the agreement outlines can access this information. This kind of clause thus adds a layer of protection for your business’ sensitive information and provides you with legal recourse if the other party breaches their confidentiality obligations. 

What Does a Confidentiality Clause Cover?

A confidentiality clause should detail:

  • the kind of information you consider sensitive;
  • who the agreement covers;
  • any laws that may require disclosure;
  • permissible uses or disclosures of the sensitive information;
  • expected standard of storage/security measures;
  • the length of the confidentiality period;
  • whether the other party needs to return any information to you;
  • the consequences of a breach; and
  • any enforcement measures.

For example, say you are selling your business. You may include a confidentiality clause in an agreement with a potential buyer. This means if they want to discuss any confidential information with managers or staff members, you must cover these parties as approved disclosures in your agreement. This applies even if they are not a party to the agreement itself.

When Should I Use a Confidentiality Clause?

You will use confidentiality clauses in contracts all across your business. When you share information with another party that you do not want to be generally accessible, you should include a confidentiality clause or implement a non-disclosure agreement. These kinds of clauses can protect any kind of information, limited by what the other party agrees to uphold.

For example, you may use a confidentiality clause if you are sharing information about:

  • intellectual property;
  • trade secrets;
  • your business methods or systems;
  • client and customer information;
  • employee information;
  • financial information;
  • business strategies, such as those around marketing or pricing; and
  • information not generally available to the public.

Your business’ information is valuable, so you should take steps to protect it when necessary. For example, you may include a confidentiality clause in a new employment agreement or when you are sharing information with a potential buyer for your business.

What is a Privacy Clause?

A confidentiality clause will apply to sensitive information unique to your business or company. However, a privacy clause is usually broader and will relate to your obligations around handling personal information. For instance, this is any information about an identifiable individual, which includes:

  • names;
  • pictures;
  • email addresses;
  • financial information; or
  • IP addresses.

You have various legal duties when you deal with such information, and you may need to include a privacy clause in a contract to ensure you meet those duties. This kind of clause will impose an obligation on one or both parties to comply with the Privacy Act. 

For example, your privacy clause may inform the other party that you collect their personal information and what you intend to do with it. You may need their consent for certain disclosures of their personal information.

When Should I Use a Privacy Clause?

If your contract involves personal information, it would be prudent to include a privacy clause. This applies both when you are using the other party’s personal information or using the personal information of people outside of the contract. This may be particularly useful in employment agreements and agreements relating to sharing personal information overseas.

For example, if you share personal information with a foreign party, they may not have privacy duties as strong as the ones that New Zealand law imposes. Therefore, you need to ensure that you include a privacy clause in your contract that details the standard they need to maintain when handling the personal information of New Zealand citizens.

Key Takeaways

A privacy clause applies to personal information, such as that of your employees or customers. You may include one to ensure that you are meeting your duties under New Zealand privacy law or to make sure the other party does as well. A confidentiality clause is more specific and will apply to your business’ unique information. It outlines how parties can use your confidential information and who they can or cannot share it with. If you would like more information or help with your confidentiality or privacy clause, contact LegalVision’s privacy lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a confidentiality clause?

A confidentiality clause is a term you would include in a contract. It specifies certain business information that one or both parties need to keep confidential and how long for.

What is a privacy clause?

A privacy clause is another kind of contract term. This clause details how you handle any personal information relevant to the contractual relationship, such as what kind of personal information you collect from the other party.

When do I need a privacy clause?

If a contract has privacy implications, then it would be a good idea to outline what you expect both parties to do to meet their privacy obligations. This is useful in employment agreements and contracts with overseas parties concerning personal information.

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2019 Top 25 Startups - LinkedIn
  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards