What is a Consultant NDA?
A consultant nondisclosure agreement is a legally binding contract that outlines the confidentiality obligations for all parties involved in the consultant-client relationship. Depending on what is being offered through this contractual agreement, the NDA agreement can also be referred to as a consultant confidentiality agreement, legal consultant nondisclosure agreement, an independent contractor nondisclosure agreement, or a technical consultant nondisclosure agreement.
These documents are important because they provide the level of security necessary for clients to trust consultants to help them efficiently and reliably manage their private financial information. Failure to maintain confidentiality can result in heavy fines and even jail time if the infringing party spreads or sells the private information of a company . In the most basic terms, consultant nondisclosure agreements are legally binding contracts that prohibit either party from revealing business information that is entrusted by the other, or from misusing or making unauthorized copies of these documents.
A consultant non disclosure agreement will specify the terms of the confidentiality in question, such as:
In the case of consulting out services, the client is often trying to get a technological solution for issues with software or equipment. In this scenario, the consultant may ask information of the client such as what kind of data is being handled through the software or equipment and what is the level of privacy among the shared electronic files of these systems. If the nature of the client’s private information is highly sensitive, then the consultant may have to sign a legal consultant nondisclosure agreement to protect the confidential secrets of the business from falling into the hands of other people or businesses.
Important aspects of a Consultant NDA
The main components of a Consultant Non Disclosure Agreement include the following:
Confidential Information
A definition of what constitutes confidential information is essential in any NDA, including a Consultant NDA. It is important to note what is not considered confidential information. Excluded from confidential information could be information that is already publicly known, already known by the Consultant, published by the owner, disclosed by third parties not bound by confidentiality agreements and disclosed by operation and/or law (i.e. public filings). This should be included in a section titled "Confidential Information".
Permitted Use
The permitted use should clearly set forth what the Consultant is allowed to do with the confidential information. If the confidential information is to be used by the Consultant only for the purposes stated in the NDA, this should be clearly set forth. Use beyond what is disclosed or as otherwise prohibited under the Consultant NDA should not be permitted.
Third Parties
Disclosing confidential information to third parties without the owner’s consent could open the door to liability if the third party is not also bound to the confidential information requirements of the Consultant NDA. The third party will be subject to the agreement terms if they agree to be bound under a separate written agreement. If it is unclear whether the Consultant can disclose confidential information to third parties, the agreement may need to be amended or revised to prevent liability.
Non-Disclosure and Non-Use Covenants
The Consultant NDA should have a non-disclosure and non-use covenant. A non-disclosure covenant would prohibit the Consultant from disclosing the confidential information while the non-use covenant would would prohibit the Consultant from using the confidential information for any unauthorized purpose, both while the agreement is in effect and after it has expired. The consultant may also need to return or destroy the confidential information upon expiration/termination of the agreement.
Term
The term of a Consultant NDA should be clearly identified. Having a clearly defined term will help avoid misinterpretation or misunderstanding about when the terms of the agreement are in effect.
When to consider using a Consultant NDA
There are a number of business situations in which it can be critically important to have a binding non disclosure agreement with a consultant. Here are a few:
- Protecting internal know-how – if the consultant will be having access to proprietary information, programs, procedures, or aspects of your business that you want to keep confidential, a consultant NDA can be crucial. Your consultant may be a key advisor to your company so this step is highly recommended.
- Protecting intellectual property – a Consultant NDA is important when discussing or working on products that involve patentable developments; client lists; research strategies and results; new methods; new technology; formulas; and other intellectual property. The consultant NDA should include a detailed list or at least capture the essence of the information to be protected.
- Protecting trade secrets – if your business has valuable trade secrets, a Binding Consultant NDA is essential. It is crucial to draft the NDA with the focus on protecting the trade secret by imposing a contractual obligation of confidentiality.
- Strategic partnerships and joint development – if your consultant is involved in research and development, an NDA is critical for this activity. For example, a consultant engaged to co-develop software applications or new technology would require a consultant NDA to ensure the independent contractor cannot disclose, share or use the proprietary and confidential information for purposes unrelated to the project.
- Licensing agreements – if the consultant is helping to develop a license agreement for your software, a Consultant NDA is important to ensure that none of the information the independent contractor receives could be disclosed to others.
- Franchise agreements – if the consultant is helping to build a franchise business plan or marketing plan, an independent contractor nondisclosure can protect this information from being disseminated to others outside of the franchise system.
How to create a Consultant NDA
As you are drafting your Consultant NDA, there are a couple of important things to keep in mind:
Consistency: Consistency is key when it comes to your Intellectual Property. You should be consistent with what you call each type of Intellectual Property within your company and apply the term consistently within all company documents. To ensure your terminology is consistent, list all of your terms and definitions. Also, make sure that the definition of Intellectual Property in this Consultant NDA is consistent with the definition found in your contractor agreement, and vice versa.
Confidential Information must be defined. As with the terms that relate to your company’s Intellectual Property, you need to be consistent when referring to Confidential Information. Define Defined Confidential Information and General Confidential Information within the body of the NDA and then provide a definition section at the end of the document that defines terms.
You may want to expand the definition of Defined Confidential Information beyond just "all information," to include items such as:
· Technical specifications and know-how;
· Software programmes;
· Hardware; and
· Marketing strategies.
Legal Advice: Your Consultant NDA should be reviewed by a lawyer since it is an official legal document. An experienced lawyer will be able to advise you on the types of information you need to keep confidential and will also be able to advise you on how to enforce the document should the Consultant disclose Confidential Information without your permission.
Common pitfalls to watch out for
One of the most common errors which owners in smaller businesses and startups make is failing to put a proper confidentiality clause in their contract, such that it can be denied in a court of law if the matter comes to it. It may seem obvious to include a confidentiality clause when hiring a consultant, however, the confidentiality clause is unfortunately not always taken seriously. In many cases, confidentiality clauses are simply forgotten. Whenever a consultant, or any third-party, has access to any kind of sensitive information, companies must ensure that they have NDAs in place. Another typical error is failure to ensure what the NDA actually conveys in terms of confidentiality . Not all information requires protection, and words can be easily confused. When drafting the NDA, companies should be precise in defining what constitutes confidential information which they wish to protect from disclosure to any third-parties. This should also include information which companies wish simply to control, such as denying publication of a product on a website, in an advertisement, or for any other use. Finally, ownership of the information may potentially be conflated or mistaken, and so companies should clearly state the ownership of the confidential information as soon as possible to ensure that no disputes arise later on about what constitutes either investor or company intellectual property.
Legal considerations and enforcement
A Consultant Non Disclosure Agreement, like other contractual agreements, can be enforced under the law. While the strength of enforceability will be dependent in part upon the jurisdiction involved, properly drafted and executed Consultant NDAs are ordinarily valid and binding.
In general, penalties for breach of a Consultant NDA differ based on the consequences of the breach. The Consultant NDA may provide for an award of damages and/or injunctive relief. If a Consultant NDA contains a penalty clause, that penalty may be enforced as long as it is not deemed excessive. The remedy offered in a Consultant NDA will primarily depend on the subject matter and strength of the confidential information.
Many breaches of a Consultant NDA lead to direct commercial or financial losses for the disclosing party. However, some breaches or potential breaches may lead to loss of reputation in the market or industry that are more difficult to quantify. If quantifiable losses cannot be easily obtained, the law typically allows for the injured party who has breached or is threatened with breach of a Confidentiality or Non-Disclosure Agreement to obtain an injunction (a court order) to prevent further breach of the Consultant NDA.
Tailoring Consultant NDAs to specific industries
Given the wide diversity of industries in today’s economy, it is only natural that confidentiality agreements are not a "one size fits all" proposition. Tailoring the NDA to address the specific needs of the business in question is crucial to a properly functioning agreement.
Industries such as health care, technology, engineering and the financial services each have distinct issues with regard to protecting confidential information. For example, in the medical device market, an NDA that fails to carve out patient specific data would be of little benefit. Likewise, in the information technology ("IT") industry, sales and marketing tactics may need to be kept confidential as much as the source code for the software program itself.
To that end, below are four examples of clauses/caveats that are likely appropriate in an NDA in the referenced industry:
The above clauses are a small sample of how NDAs may be customized to meet the needs of a specific industry.
Frequently asked questions
Is the language in a Consultant Non Disclosure Agreement written with legal terminology?
There are technical terminologies within a Consultant NDA, however, the areas that matter most to you have been clearly laid out in simple, comprehensible terms. A sample of this type of language could be: "Consultant acknowledges that in the course of providing the Services they may learn of information of confidential nature belonging to Company and/or its affiliates that relates in any manner to the Company’s or its affiliates’ past, present or future research and development or business activities or products or which is designated as being proprietary or confidential by the Company or any of its affiliates at the time it is disclosed to Consultant ("Confidential Information") . "
What is the purpose of a Consultant NDA?
Companies use Consultant NDAs to protect their work and investments by preventing contractors from sharing information about a company’s products, services, ideas, customers, and trade secrets.
Are any restrictions in a Consultant NDA enforceable?
Some restrictions contained in Consultant NDAs are not enforceable in court due to competitive laws in the region. For instance, clauses that restrict an employee from working for a competitor in the same industry for a certain period of time. For this reason, it is important to have a lawyer who is familiar with these laws when drafting or signing an NDA.
Will I be able to review the Consultant NDA before I have to sign it?
Yes, a company will often send the NDA for you to review and adjust or request specific changes before you are required to sign it.