Ensure independent contractors keep your company secrets safe with a NDA

Thinking about working with an independent contractor who might be exposed to your trade secrets? Protect your company's confidential information with an NDA.

by Belle Wong, J.D.
updated May 11, 2023 ·  3min read

Many small businesses find themselves in situations where they need to hire outside the company in order to get a particular project completed. For example, you may need someone for content writing or graphic design but there's not enough work to necessitate hiring a permanent employee for the task. At the same time, your current employees may not have the required skill set or time to take on work outside of their current responsibilities. In such circumstances, using an independent contractor is often an ideal solution. But before you hire one, you should make sure you have a nondisclosure agreement in place.

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Independent contractors vs. employees

It's important to remember that an independent contractor is not an employee but a self-employed individual who works with you, their client. Because of this, they are small business owners, just like you.

When you use the services of an independent contractor, they are essentially a vendor or supplier whom you pay a negotiated fee for the work they do for you. Unlike an employee, they retain the responsibility for paying their own taxes and do not look to you for salary or employee benefits.

Protecting your confidential information

Depending on the tasks you want them to perform, an independent contractor may have access to your company's trade secrets, which is why it's important that you have them sign a nondisclosure agreement (NDA). Doing so protects you in a number of ways:

  1. It serves to emphasize that they may be exposed to confidential information during the tenure of their contract and that they are obligated to keep such information confidential.
  2. Signing a separate contract to deal with the nondisclosure of confidential information reinforces the seriousness of their obligation to keep your trade secrets to themselves.
  3. The NDA clarifies that the obligation to keep your information confidential is an ongoing duty that doesn't end when the term of their independent contractor agreement with you is terminated.

The independent contractor NDA

There are two types of NDAs: mutual and unilateral. You use a unilateral NDA if only one party to the agreement is sharing confidential information, while a mutual NDA should be used if both sides are exposed to each other's trade secrets. In most relationships between a client and an independent contractor, it is only the client who shares confidential information, so the unilateral nondisclosure agreement is more commonly used.

Whether you're working with an attorney to draft the NDA or doing it yourself using a template, the agreement should include important information such as the following:

  • What is meant by “confidential information." The NDA should clearly describe what company information must be held in confidence.
  • The duty not to disclose confidential information. Clearly state the independent contractor's duty to keep your trade secrets private.
  • Exceptions. List any exemptions to the nondisclosure duty, such as during a government investigation where the independent contractor might be legally compelled to disclose the information.
  • The return of the confidential information. This provision should clearly spell out the obligation to return any materials containing confidential information when the contractor ceases working with you.
  • Ongoing duty of nondisclosure. Your independent contractor's obligation not to disclose your trade secrets remains in effect even after their contract with you has ended.

Most small business owners have, at one time or another, worked with an independent contractor to provide services on a temporary or part-time basis. If you anticipate your independent contractor will have access to your trade secrets, it's important to protect your information by using an NDA.

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Belle Wong, J.D.

About the Author

Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends h… Read more

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