3 Ways to Reduce Your Risk When Hiring a Subcontractor

July 2019
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When it comes to creating contracts for your business, it’s always a good idea to hire a lawyer to draft your required legal documents rather than to “borrow” language from online templates or services. 
That said, if you want to reduce or minimize your risk when hiring a subcontractor, it pays to know a little about what you may want to include in those contracts.

For this column, we talked to Los Angeles attorney Gordon Firemark, who specializes in communications, entertainment and new media matters for clients.

We focused on three types of clauses to consider:

1. Non-disclosure agreement (NDA) clause — NDAs are designed to protect trade secrets. This includes any data, processes or systems that are proprietary to your business.

The question is, can a competitor use your trade secrets against you to gain an unfair advantage?  Firemark believes an NDA clause is important, “since it will give you the peace of mind to share material with subcontractors fairly freely.

Discretion is still wise, but you don’t want to have to ask for an NDA when you’re rushed to get an assignment off your desk. It’s better to have it in place from the start of the relationship.

“For the NDA, the requirement of confidentiality should remain in effect until either the information is no longer confidential or the subcontractor can show that it was made available to him or her by a third party that was not under an obligation to keep it confidential,” he said.

Firemark added that NDAs should always include a clear statement of what information is deemed confidential.

“Be specific about the kinds and categories of information that you need to protect. Not everything has to be kept confidential, and courts don’t like to enforce provisions that are overly broad.”

2. Non-circumvention clause — Non-circumvention provisions prohibit employees and subcontractors from stealing your existing clients and potential assignments. Firemark said that when people discuss what they see as “non-compete” clauses, they are in fact talking about a “non-circumvention” clause. 

“This is a provision that prohibits a subcontractor or employee from soliciting or accepting work directly from your existing clients whom they’ve come into contact with as a result of working with you,” he said. “That is perfectly fine, and very appropriate. Assuming your subcontractor will accept such a restriction, it’s a wise thing to include."

3. Non-compete clause — Firemark is not in favor of a true non-compete clause in many instances.  
“This would be something that tells an employee or contractor that he or she may not operate a business that competes with your business, usually for a period of time, and within a particular geographic market or business segment,” he said. 

In most cases, for all of the above types of clauses, a time frame for the limitation is pretty smart, he said. “After all, if your subcontractor can never take an assignment from one of your clients ever, then that’s a pretty restrictive clause.”

In most cases three-to-five years is a reasonable period after which a non-circumvention clause might expire.

Firemark counsels that these agreements can’t protect against everything. He reminds us that knowledge is hard to regulate and limit. Even if a subcontractor doesn’t intentionally use knowledge gained through the relationship with you, he or she might still implement a procedure or practice.

Still, he said, these agreements open up conversations that may reveal themselves to you early in the relationship.

Editor’s Note: The opinions expressed in this article are intended for general guidance only and are not intended as recommendations for specific situations.

Tim OBrienTim O’Brien, APR, owns O’Brien Communications, an independent corporate communications practice in Pittsburgh, and hosts the “Shaping Opinion” podcast.
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