If you’re growing your small business, you might find yourself in a position to hire employees and/or independent contractors to take over some of the responsibilities associated with carrying out certain duties. (We cover the differences between employees and contractors HERE.) This can be concerning if your business has intellectual property and processes that you would like to remain confidential. It’s important to reduce your risk before the hiring process begins. While it’s important to talk to an attorney before asking an employee or contractor to sign formal documentation, you need to be aware of the three main types of noncompetition agreements used to protect your assets from being divulged to your competition.
- Traditional Noncompetition Agreement: The traditional NCA states that an employee, during employment or after termination of employment, will not work for the employer’s competitor for a certain period. This prevents the employee from taking sensitive information acquired while working with the employer and using it against the company by using it while working for the competition. It is important to note that NCAs can only be signed by employees, not independent contractors. Since, by law, an independent contractor is one that does work for multiple employers at the same time, asking the contractor to sign a NCA can negate the independent contractor status and you could be on the hook to pay full employee benefits and taxation if audited.
- Non-Solicitation Agreement: An NSA prevents a former employee from soliciting, contracting or transacting business with the employer’s customers or employees for a certain period after leaving the company. This prevents an employee from taking your clientele and employees with them when they leave your company. Again, this can only be signed by an employee, not an independent contractor.
- Confidentiality Agreement (also known as a Nondisclosure Agreement): This contract prevents employees from using their employers trade secrets, proprietary information, confidential business information, customer lists, or any other sensitive information that could only be obtained by working for a particular employer. Since trade secrets are vital to a business’s continuation, there is typically not a time restriction on these contracts. These contracts can be signed by employees or independent contractors alike.
What is the best option for your company? It’s important to speak with an attorney that specializes in small business to understand the differences between the contracts and the risk reduction that can be associated with each. The experienced professionals at LexLaunch.Com are happy to listen to your individual needs and create solutions that work for you and your small business. Call the attorneys at LexLaunch.com at (816) 434-6610 or click here for more information to learn more about how to decrease risk and protect your small business.