An NDA is used before you sign a contract with anyone. It's a document that allows you to share information freely between two parties so that you can make a decision to work together or not, and then sign your actual contract for work and scope of services.
An example of this would be if a client is looking for someone to create an iTunes app and needs to share their ideas for what they're looking for—but they're not quite sure if you're capable of doing this type of project. If you sign an NDA together, they can divulge all the information without worry that you'll walk away and spill the beans to their competitors but it doesn't lock either of you into an agreement to work together on executing the project.
Can you give your contractor a non-compete?
You might think that asking a contractor to sign a non-compete is pretty standard. After all, you’re just asking them to not sell your trade secrets to the enemy, right?
The short answer is no, by law you cannot restrict who they work for (even a competitor!) unless you want to classify them as an employee. Also, you cannot limit them from creating a competing company in your space, or even taking clients away from you!
A Non-Compete Agreement is a classic component of an employment arrangement and contract therefore, none of our contractor templates include non-compete language. However, all of our templates do include language around keeping your work activities, systems, processes, etc. confidential.
Our NDA is a great precursor to any of our client-service provider templates. It is used when considering a new hire and you need to reveal things about how your business works to see if you're a good fit to work together, but you want to keep things confidential.
Well, with non-competes are off the table, what can you do to protect yourself and your business? I personally have focused on building a recognizable brand, offering incentives for my contractors to stay, and even build in a privacy clause!
How do you prevent a former contractor from creating a competing business?
Unfortunately, you cannot prevent contractors from learning the ropes in your business and then have them leave and create a rival company. You can try to prevent them from leaving or mitigate the impact by creating incentives to stay, having a recognizable brand, as well as utilizing a confidentiality clause. This allows you to make sure they are not using anything they learned in your organization to further their own benefit.
As a final note, if you think a non-compete is necessary for the work you do, or you realized you are technically treating your contractors like employees, it might be time to think about offering employment.
I go more in-depth about non-competes and ways to protect yourself in my blog and video which are both linked below!
Blog: The Problem With Non-Competes
Video: Can you give your contractor a non-compete?
