Confidentiality Agreement FAQS

By Simon Palmer and Harry Nicolaidis

If you are looking at buying a veterinary practice, it is likely that you will be asked to sign a Confidentiality Agreement or Non-Disclosure Agreement at some stage. 

There are a lot of misconceptions about these agreements, what they mean and if they are enforceable. In this article, we address some of the frequently asked questions that arise from these agreements.

  1. Why are confidentiality agreements necessary in a practice sale transaction?

During a practice sale, it is likely that a seller will share information with a buyer that they would not like shared in a wider context.

This confidential information might include the financials of the practice, the details of its marketing efforts, payroll information about the staff, etc.

For the seller to feel comfortable about sharing this information, the purchaser needs to agree to treat these disclosures confidentially.

  • Does signing a confidentiality agreement mean that you cannot share the information with your spouse or advisors?

Buying a business will almost never be completed without the buyer discussing information regarding the deal with spouses and advisers (bank, accountant, lawyer).

A confidentiality agreement usually has provisions to reflect that the confidential information may be used and shared in specific circumstances. That is, shared with their necessary advisors (bank, accountant, lawyer, business partner, etc.), for the purposes of considering a specific opportunity. If they don’t, then the buyer should either seek an amendment or get a separate NDA for their spouse and advisors.

  • What happens if the confidential information that you have received becomes public knowledge – are you still bound by the agreement?

Typically, a confidentiality agreement will have exclusions for information that is or becomes publicly available or generally known to the public.

  • Is a confidentiality agreement only in place to protect the seller?

In a business sale transaction, confidentiality agreements are usually in place to protect the seller alone.

However, there are many reasons that a buyer will also want a confidentiality agreement in place.

A vet looking at a veterinary practice to buy may be reluctant for their current boss to find out that they are looking, as there may be an implication that they intend to stop working at their current job to pursue the purchase. 

For this reason, every Practice Sale Search practice for sale also includes a separate confidentiality agreement from the seller, to give a buyer peace of mind that the buyer’s identity will be treated confidentially.

  • Is there a difference between a confidentiality agreement and a Non-Disclosure Agreement (NDA)?

In a business sale interaction, there is unlikely to be any material difference between a confidentiality agreement and a Non-Disclosure Agreement. Irrespective of what they are called, both have the effect of protecting confidential information provided by one party to another.

  • I have heard that NDAs and Confidentiality agreements cannot be enforced. Is this true?

This is incorrect; significant penalties can absolutely be incurred if people misuse or inappropriately disclose information provided under a confidentiality agreement.

However, I think this question misses the point of these agreements.

The principal purpose of putting a confidentiality agreement in place is to guide appropriate behaviour. The fact that it creates legally enforceable obligations is ancillary to that purpose.

If you are sharing sensitive information, you would want a confidentiality agreement for four reasons.

  1. First and foremost, it is a written acknowledgement from the recipient that they recognise that the information received is commercially sensitive.
  2. Secondly, you want acknowledgement that the information should not be shared. unnecessarily, should be kept securely and that unauthorised disclosure could cause harm.
  3. Thirdly, you want it to act as a deterrent in place for people who would otherwise be careless by disclosing this sensitive information.
  4. Finally, so that if there is unauthorised disclosure or misuse of this confidential information such that a loss flows from it, there is a legal pathway to appropriate compensation and recourse for that loss.

Hopefully the first three points will mean that the confidential information is secure and the fourth point – recourse- is rarely if ever necessary.

Why the Staff will Stay

It is quite common for practice owners to be fearful of how the staff will react if they learn that their practice is for sale.

While it is, of course, always possible that a practice could experience some staff attrition when it changes hands, it is, in fact, extremely rare.

Believing that the staff will quit when they hear that the practice is being sold is to believe that the only reason that the staff is there is because you are the owner, that your ownership is somehow so good that no one could fill your shoes and that staff will believe that they are better off leaving, rather than even trying to work for the new owner. This way of thinking is perhaps a little narcissistic.

As good a boss as you are, you can rest easy as there is probably a multitude of reasons why your staff work for you and will stay when you sell. For example:

  1. Financial

Simply put, for most people, quitting your job usually represents more financial risk than staying.

Chances are that your staff are working for you, not for a love of the job or for a love of the business owner, but out of some financial necessity. While it may be the right time and financial conditions for the owner to retire or try something different, it would be a huge coincidence for your staff to reach that same juncture at exactly the same time.

  1. Staff who stay maintain their current salary.

There are no promises that they will get the same or better terms elsewhere.

  • Staff who stay maintain their current leave entitlement accruals.
  • Staff who quit could lose their long service leave entitlements (depending upon the state that you are in, how long you have worked for the practice and your reason you are leaving).
  • Sick leave (now called personal/carer’s leave) is accrued at a rate of 10 days per year (For full time, pro rata for part time) and these days are cumulative. Any outstanding sick/personal/carers leave that an employee has on resignation is forfeited and not paid out. For long-term staff, this can be a huge amount to just give up.
  • Convenience

People are often geographically restricted by where they can work. It usually needs to be within a certain distance from where they live and their kids go to school. It is rare that there will be an equivalent or better position, with equivalent or better pay available at the time, within the geographical limits of where they will consider.

  • Respect and job competence

Staying at their current location means a transference of respect from their old boss and team to the new boss. They can continue to work in an environment where they are proficient with the tools/software that are available, how to use them and where everything is kept. They know the strengths and weaknesses of the team, whom they can count on for assistance and whom they can’t. They are familiar with the equipment in the office, the patients, reps, suppliers, neighbouring businesses.

Starting at a new practice will mean “earning their stripes” from scratch, proving their worth and starting to earn the trust of their new boss and team, while at the same time learning how to do their job in a new environment, with new procedures, new tools, new unknown team-mates and, as a result, with compromised competence, at least initially.

In short, if your staff are currently happy with their jobs, leaving it would usually mean less financial security and losing leave entitlements, to work in a position that may not be as convenient and that they will most likely be less competent at.

Why would they put themselves through such an ordeal just because you are selling?

The truth of it is, that if your practice is for sale, most staff will be far more fearful of leaving their job than they are of the new owner.