Key Takeaways

  • Confidentiality breaches can lead to lawsuits, loss of business relationships, termination of employment, reputational harm, and potential criminal charges.

  • A breach occurs when someone discloses sensitive information, trade secrets, or proprietary data, violating a confidentiality agreement.

  • Rare exceptions may apply, such as whistleblowers exposing illegal or unethical practices under a "public interest" defense, but these actions still carry risks and potential penalties.

  • Consulting a contract lawyer is essential for understanding your rights and options in addressing a confidentiality breach effectively.

  • Post a job on UpCounsel to find a contract attorney for individualized guidance. 

The consequences of a breach of confidentiality include dealing with the ramifications of lawsuits, loss of business relationships, and employee termination. This occurs when a confidentiality agreement, which is used as a legal tool for businesses and private citizens, is ignored.  

The following content will explore the consequences of a breach of confidentiality in detail. It will also discuss strategies for preventing confidentiality breaches and what to do if one occurs. 

What Is a Breach of Confidentiality?

A confidentiality agreement, or non-disclosure or secrecy agreement, protects company secrets, processes, products, trademarks, and patents.  

The Federal Health Insurance Portability and Accountability Act (HIPAA) provides an example of a confidentiality agreement for private citizens. HIPAA laws keep all personal medical information private.

Legal Consequences of Breaching Confidentiality

A breach of a confidentiality agreement results in serious consequences for the parties involved.  

The actions that can be taken and possible consequences include:

Lawsuits

Injunctive relief should be filed to have the court stop the party in violation from continuing their actions. Then, evidence of the breach should be gathered to show irreparable harm.  

The language of most confidentiality agreements states that any breach would be seen as causing irreparable harm. 

If an employee's confidentiality agreement has been breached, the employer may receive monetary damages from the employee. The employee may be responsible for the loss if the damages can be calculated.  

For example, if an employee has sold trade secrets to a competitor, the market share and revenue loss may be calculable. The employee may also be responsible for punitive damages.

Loss of Business Clients and Relationships

Confidentiality agreements protect company secrets, operations, and more when businesses share services with other businesses. 

If the agreement is breached or violated, there can be severe repercussions for business and professional reputations and the loss of current and future clients. 

The person guilty of the breach may find themselves blacklisted, which can result in the inability to conduct business. 

The guilty person, who may work in a niche industry, may gain a long-lasting or permanent bad reputation, making conducting business challenging. 

Any future employers will see the guilty person as a potential liability if they are hired.

Termination of Employment and More

Employment confidentiality agreements are used by many companies, including those in marketing and advertising products. 

The employee confidentiality agreement will always state that employees who breach or violate the contract will be fired. It will also include the stipulation that seeking monetary damages will be pursued.  

Firing the employee can occur even if an employment contract exists. The breach will most likely also violate the employment contract.

Criminal Charges

If the breach involves intellectual property or proprietary information to the company, it may be considered theft. 

If theft is proven, fines or imprisonment may be applicable, but a prison sentence is unlikely for confidentiality breaches on their own.

Is It Ever Okay to Breach a Confidentiality Agreement?

While confidentiality agreements are designed to protect sensitive information, there are rare situations in which breaching them may be justified. 

For example, if withholding information could lead to harm or illegal activity, disclosing it may serve a greater purpose.  

Whistleblowers often face this dilemma when exposing unethical or illegal practices. Such cases sometimes invoke the “public interest” defense, where revealing information benefits society. 

However, even in justified cases, breaching a confidentiality agreement carries consequences.  

Legal action may still be taken against the individual, and proving the breach was in the public's interest can be challenging. This can lead to reputational damage, financial penalties, or strained professional relationships. 

Disclaimer: Before taking any action, consult with a qualified contract lawyer. Legal guidance is paramount to being aware of your situation's potential risks and considerations. Making an informed decision with professional advice can help minimize unintended consequences.

Preventing Breaches of Confidentiality

Preventing breaches starts with creating a culture that values discretion and transparency about confidentiality expectations.

Best Practices for Protecting Sensitive Information

  • Encrypt sensitive data

  • Limit access to critical files 

  • Regularly update security protocols

  • Conduct training sessions to educate employees about confidentiality obligations

  • Implement risk management practices

Tips for Organizations and Individuals

Organizations should implement clear policies, regularly audit information-sharing practices, and encourage reporting possible vulnerabilities. 

Individuals should be cautious when sharing information and avoid discussing confidential topics in unsecured environments.

Key Elements to Include in Confidentiality Agreements

Agreements should clearly outline what constitutes confidential information, specify allowable uses, and detail penalties for breaches.  

They should also include clauses addressing potential exceptions, such as legal subpoenas or public interest disclosures. Clearly defined terms and clauses help minimize ambiguity and ensure all parties understand their obligations.

What to Do if a Confidentiality Breach Occurs

Discovering or being responsible for a confidentiality breach can be daunting, but dealing with the issue immediately and appropriately can help limit the damage. 

If you caused the breach, speak with a contract lawyer to decide your next best actions.

This may involve alerting affected parties or establishing additional security measures.

Mitigation also involves repairing relationships with clients or business partners if the breach has affected them. Offering solutions, such as compensation or guarantees of improved security practices, can help rebuild trust.

If someone else breaches a confidentiality agreement, the impacted party has several options to address the situation, depending on the contract's terms and the severity of the breach. 

Determine whether a breach occurred and collect evidence to support the allegation. This could involve illegal disclosures, leaked material, or other acts forbidden by the agreement.  

Carefully review the terms of the confidentiality agreement to understand the remedies outlined for a breach. Agreements often specify penalties, such as monetary damages, injunctive relief, or other legal recourse.  

Knowing your rights under the contract helps you decide on the next steps.

Speak with a Contract Lawyer in Your State

Post a job on UpCounsel to find a contract lawyer in your state to help you understand your rights and options surrounding breaching confidentiality​.  

Laws surrounding confidentiality agreements can vary by state, so it is vital to consult with a contract lawyer familiar with your jurisdiction.

FAQs

What is the penalty for breaching confidentiality?

The severity of penalties may differ based on the jurisdiction and the terms of the agreement. In severe circumstances, the consequences may include legal fees, loss of employment, monetary damages, or even criminal charges.

Are there any exceptions to confidentiality agreements?

Yes, certain exceptions exist.  

For example, a legal subpoena may force the disclosure of material protected by a confidentiality agreement. Similarly, whistleblowers may breach agreements when acting in the public interest to expose illegal or unethical acts. 

These exceptions are not without risk, and individuals should seek legal advice to understand their rights and potential consequences.

What happens if both parties agree to end confidentiality?

When both parties agree to end a confidentiality agreement, its terms might be amended or nullified. This demands thorough documentation to avoid uncertainty about future responsibilities.