Q&A: Confidentiality and the Bylaws

Q Our condo board is made up of seven owners. Do you think that it is legal to  require board members to sign a confidentiality agreement form even though it  is not stipulated in the bylaws?  

 —Inquisitive in Iselin  

A “The short answer is yes,” says J. David Ramsey, a partner at the Morristown law office of Becker & Poliakoff, LLP. “ Boards are deliberative bodies that may establish their own rules for the  members of the board, provided those rules are not inconsistent with the terms  of the governing documents. This does not mean that the bylaws must specifically authorize a requirement for  the execution of a confidentiality agreement, it means only that there is no  prohibition on such an agreement. In the well-known Twin Rivers case, one of the issues was whether the board  could require each board member to sign a confidentiality agreement that  contains a liquidated damages provision.  

 "Liquidated damages" means that there would be a stipulated sum of money due the  association for violation of the agreement, whether or not the association  actually suffered any damages. The appellate court reviewing this issue  concluded that the board could not require that each board member accept a  liquidated damages provision. It did not, however, question whether the board  could require such an agreement.  

 “In conjunction with such agreements a common questions is: Where a board member  refuses to sign such an agreement and it is not required by the governing  documents, what may the association do? The answer in most situations is that the board cannot refuse to allow the board  member to serve.  

 “Usually, an elected board member may be removed only by a vote of the owners,  not by the board itself. As a result, the only sanction the board may impose is  to deny the recalcitrant board member access to confidential information. The  purpose of the confidentiality agreement is, of course, to confirm that the  board member understands his or her duty to the association to not release the  contents of confidential materials to those who are not on the board.  

 “A board member who refuses to acknowledge a confidentiality obligation may be  restricted from receiving such information. While that board member may still  participate in all matters that do not require review or discussion of  confidential information, he or she may be denied that information when the  board member declines to sign a confidentiality agreement.”  

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