All employers have information that they want to protect and keep secret. From a salesperson’s customer list to Colonel Sanders’ secret blend of 11 herbs and spices, maintaining the confidentiality of private information is vital for all employers.
Of course, most family offices don’t possess trade secrets, but they do possess lots of confidential information. Indeed, family office employees often know the most intimate details about the family: assets and wealth, personal relationships and disputes between family members, perhaps even legal troubles. Thus, while the types of confidential information are different, the family office’s interest in preserving confidentiality is just as important.
While the family office should always be concerned with maintaining confidentiality of private information, there are two times when it is most important: at the start of employment and at the end of employment.
When a new employee comes on-board, it provides a great opportunity to set the tone and expectations for preserving the secrecy of a family’s confidential information. Here are a few steps you can take at the outset of employment to help prevent issues months or years down the road.
Consider a Broad Non-Disclosure Agreement. One way to establish the importance of maintaining confidentiality is to prepare a broad confidentiality or non-disclosure agreement (“NDA”) and emphasize it on or before the first day of employment. Make a big deal out of it: “You will have access to extremely private information as a result of your employment. This NDA is the most important document you sign today. You will have no more important responsibility than preserving the secrecy of all of the family office’s private information.”
Ensure that Agreements Comply with State Law. Though employers enter into NDAs hoping never to enforce them, it’s still important to think about enforceability when drafting agreements. States have widely differing rules regarding NDAs. For example, Wisconsin treats employment-related NDAs no different than Non-Compete Agreements. This means that they must be reasonable in all terms or risk being ruled invalid and unenforceable. Thus, it’s very important that any agreement be drafted wisely to ensure that it can be enforced.
Maintain Information on a Need-to-Know Basis. Though NDAs are useful tools, they are secondary to establishing a culture that promotes discretion. The best NDA is the one you never have to use. If you need to enforce an NDA, it means that the cat is already out of the bag, and private information has already spilled into the public. One way to establish a culture of discretion is to limit information on a need-to-know basis. An employee cannot share information that the employee does not possess.
One reason to establish such safeguards at the start of employment is that the end of employment can be much more emotionally charged, especially if the family office is terminating the employee. If the family office has not laid the groundwork to ensure that information will be kept confidential, it may be a challenge to prevent the departing employee from taking a “scorched earth” approach to the family’s confidential information. Still, there are steps you can take to minimize the risk.
Reiterate Any Confidentiality Requirements in the Termination Process. Regardless of how the termination occurs, it is important to reiterate the need to maintain confidentiality. This can include a reminder of an employee’s NDA obligations in an exit interview or including a copy of the NDA along with any termination paperwork. Regardless of how it is provided, giving that little push about the need to protect private information – even after employment – can only assist in helping keep information confidential.
Use Best Practices When Conducting the Termination. Terminations, especially if involuntary, are always a challenge. No employee likes to hear that they are losing their job, much less that the cause of the termination is their own poor performance or misconduct. Nevertheless, there are little things employers can do to allow the employee to preserve dignity through the process. For example, if the employee is trustworthy, allow them to stay on and pen their goodbye email. Be honest with the employee about the reason for the termination, but also be non-adversarial and non-controversial.
Consider Adding New Confidentiality Obligations. While the start of employment is the best time to enter into an NDA, consider whether to add new requirements or strengthen existing ones at termination. If you are offering a departing employee some amount of severance, you can require that employee to preserve the family office’s confidential information as a condition of that severance. You can even require the employee to return the money (and even pay your attorney’s fees) if they breach that obligation. It’s another way to remind the employee that confidentiality is a serious business and gives them a financial incentive (in addition to any ethical duties) to comply.
While there is no silver bullet to maintaining confidentiality of private family information, following these steps can minimize the risk of seeing unwanted information escape into the public.