PRACTIQUE LEGAL – Up to What Point are Confidentiality Agreements Valid in Mexico?

by Rene Cacheaux In a previous article, we reviewed legal problems associated with the validity and application of contractual non-compete clauses and agreements. This time we will analyze the regime governing the application of confidentiality clauses within contracts. Unlike non-compete clauses, confidentiality clauses in contracts are generally valid and enforceable in Mexico as long as they are properly drafted. The biggest challenge presented by these types of clauses is defining what is understood by the term "confidentiality." A common misconception is that all information becomes confidential when it is classified as such by the parties to an agreement. In reality, a confidentiality clause can only protect the information, documents and instruments which, by their nature, must be kept under restricted disclosure between the parties, and which are not or may not be, for any reason, available to the public. Not all confidential information as contractually defined or classified by the parties will be considered as truly confidential. For example, parties may not designate as confidential any information obtained from third party sources, or through scientific reasoning or through commercial, industrial or any type of application of such information. However, client lists, production formulae, information catalogs, and other specific proprietary information may be classified as confidential. The enforceability of agreements that purport to include all information provided by one of the parties as confidential is questionable, whether in relation to an employee, an independent service provider, or in relation to one of the parties to a contract in general. Moreover, this analysis varies when the parties subject to confidentiality obligations are individuals, as opposed to entities. In terms of validity and enforceability of confidentiality agreements, those agreements between individuals are simpler and impose stricter conditions than those between entities. When a company is the party subject to a confidentiality obligation, the legal effect of such obligation will require the board of directors, and those individuals involved in the receipt and handling of confidential information, to create all internal mechanisms that are necessary in order to avoid the disclosure of confidential information. In addition, the breach of a confidentiality clause leads to different levels of liability that are not always easy to determine. For instance in cases where litigation arises, it may be difficult to determine which party is ultimately responsible for paying any indemnification. In Mexico, there are certain specific legal implications that result from the breach of a confidentiality agreement. To begin with, the breach of a confidentiality agreement would imply a contractual default that results in the payment of damages and losses. In the context of an employment agreement, the breach of a confidentiality agreement would imply the possible termination for cause of the labor relationship without the employer incurring any liability from wrongful termination claims. Furthermore, in the majority of the States of the Mexican Republic, the breach of a confidentiality agreement also implies the commission of a criminal offense. In conclusion, it is recommended that confidentiality clauses should not be drafted in an over-inclusive manner that subjects all information received by a party to a confidentiality covenant since such clauses may be unenforceable.

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