When you hire independent contractors and subcontractors, they may be exposed to confidential company information like intellectual property, financial and marketing information, and other information that you wouldn’t want to be disclosed to unauthorized people. A subcontractor non-disclosure agreement can prevent subcontractors from disclosing that information to others. Like employee non-disclosure agreements, a subcontractor NDA can be included within employment agreements or in a standalone agreement.
Subcontractor NDAs must comply with all state and federal laws in order to be enforceable. Here’s what you need to know about subcontractor NDAs, and how to create your own with SixFifty’s employment tools.
What is a subcontractor NDA?
A subcontractor NDA operates the same way as an employee NDA does. The agreement protects your proprietary or confidential information from being disclosed to others, as long as it’s in service of a “legitimate business purpose.” Non-disclosure agreements can protect confidential information, including:
- Contracts with other companies
- Customer or prospect lists
- Financial information
- Intellectual property
- Marketing or business plans
- Product prototypes
- Trade secrets
The key is to ensure that the agreement is tailored to your business needs and aligned with the best practices for the drafting of NDAs. For example, your subcontractor NDA should look largely the same as the NDA you ask the contractor to sign. In some cases, you may choose to include the subcontractors as parties to the contractor agreement, rather than drafting a separate agreement. Your legal team can advise you as to the best course of action in your state and industry.
What should be included in a subcontractor non-disclosure agreement?
To ensure your subcontractor non-disclosure agreement is enforceable, include the following:
- A legitimate business interest: Non-disclosure agreements of any kind must support a legitimate business purpose. Protecting confidential or proprietary information, like client lists, trade secrets, and other intellectual property, is typically a legitimate business purpose.
- The parties to be bound by the agreement: List who the agreement binds and/or protects. If you’re including subcontractors in an independent contractor NDA, have them provide specific names to ensure you are protected.
- State-specific obligations: A growing number of states have laws regarding what can be protected by NDAs, and for how long. States often limit parties from trying to prevent disclosure of facts related to violations of labor law, such as discrimination, harassment and retaliation.
- Defend Trade Secrets Act notice: According to the Defend Trade Secrets Act of 2016, if you do not include notice regarding immunity from liability for limited disclosures of trade secrets, if applicable, then you will be limited on the damages that you can recover in the event of a breach of the NDA.
- Definition of confidential information and exceptions: Define the confidential information to be protected. Make sure that the description is not so broad that it encompasses non-confidential information, such as information disclosed without confidentiality obligations or publicly known information.
- Penalties: Finally, include the penalties if one or more parties breach the agreement. This is typically monetary compensation and the right to immediately terminate the work agreement.
Why is a subcontractor NDA important?
When you hire an independent contractor—and they bring on a subcontractor to help—it’s important to protect your confidential company information. If the subcontractor doesn’t sign a non-disclosure agreement, your assets could be at risk of disclosure to third parties.
Furthermore, a subcontractor NDA protects you if the information is disclosed. You may be able to terminate their (and/or the independent contractor’s) contract immediately and sue for the specified damages in the agreement. It’s always best to set expectations and limit disclosure at the outset, in order to protect anything you don’t want shared with unauthorized workers.
Tips on creating a subcontractor non-disclosure agreement
Creating a legally enforceable non-disclosure agreement is key. This requires research into all applicable state and federal laws—otherwise, a court could rule that your agreement is unenforceable. This leaves your information open to further disclosure, and you won’t have any legal recourse.
Many companies, especially smaller ones, may be tempted to use an online template to create an NDA. However, that could expose your business to too much risk. Your NDA should be narrowly tailored to your company, industry, employment type, parties, and the information to be protected. While a lawyer can draft an agreement from scratch, that can be time-consuming and expensive.
Instead, try SixFifty’s FREE NDA generator. We pair real legal expertise with user-friendly technology to make it easy to draft your own enforceable NDA. All you need to do is answer questions about your company and download the automatically generated document. Plus, since we monitor changes to the law nationwide, your NDA will always be up to date.
Draft a subcontractor non-disclosure agreement with SixFifty
Let SixFifty do the heavy lifting for you—and save time and billable hours while you’re at it. Ready to create your own subcontractor non-disclosure agreement? Reach out today to schedule a product demo!