Do You Need an NDA When Hiring Contractors?

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If you’re like most businesses, you have information that could hurt your venture if it got into someone else’s hands.

Even if you don’t have something top secret, like code for a killer new social network or the recipe for Coca Cola, you have other types of valuable information that need to remain confidential or private.

It could be your customer list, your financial records, or ideas for a new marketing campaign. So how can you protect that information? Today we’ll look at the first line of defense—a non-disclosure agreement (NDA), otherwise known as a confidentiality agreement. It’s standard practice in business to use one. We’ll explore what it is, what it includes and where you can find a template.

What is an NDA?

An NDA is a contract that binds someone to keep a secret. Its main purpose is to create a confidential relationship between a business and its contractors, employees, and any other business partners who might get a behind-the-scenes look at your operations.

The NDA is designed to prevent these individuals from revealing anything that should stay “in house” – including client information, marketing plans, financial data, competitive analysis, technical information, etc. Perhaps you simply don’t want a subcontractor to talk directly with your clients and disclose their role.

Elements of an NDA?

When hiring a contractor, an NDA helps establish what he or she can and can’t reveal about your business and work. A typical NDA will include the following key components:

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Protected Information

Not every bit of your company information needs to be kept secret. For example, will it really matter if anyone finds out who your email provider is or where you get your coffee? While you might think that it’s best to just leave this as broad as possible to protect any and everything, it’s wise to be extremely specific about what can’t be disclosed publicly.

By spelling out exactly what should be covered, you make sure that the contractor is on the same page. For example, a new contractor may not even realize that they shouldn’t contact your client directly or that you don’t want anyone to know about a new website until it’s released.

Timeframe

Most NDAs don’t last for infinity. You should specify exactly how long the information should stay confidential. This can be as short as the duration that the contractor will be working for you, or a set length of time (such as five years, which is a pretty common term).

Obligations

You may need to define what the contractor can or can’t do with the protected information. In most cases, it would make sense to include that they cannot reveal the confidential information to anyone outside of your company. But, in some cases, you may want to add some caveats to this. For example, are there some cases where they can use/disclose confidential information? Perhaps if they have your written approval?

What Happens if There’s a Breach?

An NDA should always include some kind of provision about what happens if there’s a breach of the NDA. You may want to specify what kind of damages you’re entitled to. The usual legal remedy is to sue for damages, but it’s not always easy to calculate what those damages should be worth. That’s why many NDAs also include language on “injunctive relief” – which gives you the ability to get a court order to stop the violator in his or her tracks (see this Harvard Business School template for an example).

Method of Resolution

The NDA should define how a dispute should be resolved when there’s a breach or disagreement regarding the agreement. Will arbitration be used? If attorneys are used, who is responsible for paying the attorney fees?

Finding a Template

There are countless digital contractor templates available to help you craft your own NDA. My advice is to use a template as a starting point that you should review (yes, you have to read it) and make sure it works for your needs.

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For example, you should personalize the “protected information” section, as well as make sure there’s nothing too onerous for your contractors. For example, some contracts give the business the right to search a contractor’s computer at any point; that might be overkill for you and your workers.

Some sample NDA templates can be found at Harvard Business School, NOLO, and Upcounsel.

The Bottom Line

Keep in mind that an NDA is just a document. It doesn’t guarantee that someone won’t steal or misuse your confidential information, but it does give you an opportunity to seek legal recourse if they do. But once an agreement is broken, you will need to decide if it’s going to be worth the time and money to pursue the breach through legal channels.

An NDA is a relatively easy document to produce and should become part of your standard practice when bringing anyone new onboard. However, never rely too heavily on this piece of paper; it’s up to you to use common sense when sharing sensitive details with those around you.

about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.

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