Nondisclosure Agreements and Noncompete Agreements


Non-disclosure agreements and Non-compete agreements

What is the difference and does it matter?

What is a non-disclosure agreement (NDA)?

An NDA, sometimes called a confidentiality agreement, is an agreement that the employee signs to protect sensitive commercial information that the company deems to be valuable to the company’s business.  It can be very broad, requiring nondisclosure of anything from intellectual property to software code to trade secrets.  Usually, researchers, scientists, programmers, and anyone with access to company data will be asked to sign an NDA as a condition of employment.  The NDA simply prevents employees from disclosing information to others, it does not prevent the employee from working for others so long as they do not disclose sensitive or confidential company information.

What is a non-compete agreement?

A non-compete agreement prohibits an employee from working for a competitor in a related business or area for a specific amount of time.  Usually, these agreements (or sometimes even just clauses or statements in an employee handbook) are used for employees with access to client information, sales employees, or high-level business employees.

Are non-compete agreements enforceable in my state?

California is the only state that outright invalidates non-compete agreements, except for a few specific statutory instances.  For the most part, if you work in California, live in California, or plan to move to work in California, a non-compete agreement is invalid.  The other states all have different versions of how stringently they will enforce a non-compete agreement.  For example, if you plan to sue a former employee who signed a non-compete agreement who is violating the terms of the non-compete in Virginia, the courts will look at the following:

  1. Length of time of the agreement – how long are you barring the employee from working for a competitor in the field?  To be safe, 2-3 years is the longest recommended amount of time you should attempt to restrain the employee from working for a competitor.
  2. Geographic distance – how wide of a geographic area have you claimed on the agreement?  Are you preventing the employee from working for a competitor in the entire U.S., or just within, for example, 50 miles of your company’s office?

You cannot and should not attempt to restrain the employee from working in the field or practicing their line of work entirely, since an agreement that broad will likely be invalidated in court.

Image by Flickr user Casey.Marshall (Creative Commons)


Copyrights and the Images on your Small Business Website

In today’s world most small businesses must have a website.  Many unwitting business owners simply download images they see on the internet and place them on their own website.  Either these business owners do not consider the copyright laws or assume the chances of getting caught for using an unlicensed image are slim to none.  It is important to know that the largest digital media companies now have sophisticated web crawlers that search the web for sites displaying their images.  (Read: Your website will be found.)  Once these digital media companies find a website with their unlicensed image, they will send your business a copyright infringement notice demanding hundreds of dollars (or thousands depending on the image).   Taking down the image will not be enough to appease them and if you ignore the letter, you are risking a lawsuit.

Of course you can properly license an image from a reputable digital media company by paying a licensing fee and then use it on your website with peace of mind.

In the alternative, there are a number of online sources of free images.  These sources provide images that can be used on your website as long as you give proper attribution to the image owner.  (Read the terms carefully, reselling images in any way is often not allowed.)  For example, check out:

Flickr Creative Commons: http://www.flickr.com/creativecommons/ where thousands of people upload photos and allow others to display them on websites etc.

Find photos available under “Attribution License” and always attribute the image owner as follows:

Image by Flickr user NAME OF USER LINKED TO IMAGE ON FLICKR (Creative Commons)


Independent Contractor vs. Employee

What’s the difference?

As an employer, it is essential that an employee be classified properly, since misclassification of a worker can result in additional taxes, interest, and penalties to your business.  An independent contractor is not an employee of the business.  Independent contractors take on clients who pay them for services rendered.  The primary consideration in determining whether a worker is an independent contractor is the level of control that contractor has over their own job function.  In other words, a person could likely be classified an independent contractor if that person is someone whom the employer has the right to control only the end result of the work and not how the work is done.  What does this mean?

The level or degree of control that an employer has over the independent contractor’s daily work and schedule affects the classification of the worker.  In general, the higher or greater the degree of control, the more likely the worker is to be classified an employee and not an independent contractor.  Consult with a qualified tax attorney for advice on proper classification of an employee or independent contractor.

Independent Contractor Basics:

The independent contractor is often a services employee who is tasked for a particular job or project and the way they accomplish the result, the hours that they work, and how it is carried out, is determined solely by the independent contractor.  An independent contractor can be a lawyer, electrician, janitor, retail clerk, or any other job in which the contractor has control over how the job is carried out.  If a worker is an independent contractor, the employer does not make any payroll deductions on their taxes, does not provide benefits, does not support a 401K plan, and cannot control how the work is done.  The worker is responsible for filing their own taxes, obtaining their own benefits and contributing to their own retirement.  The job of an independent contractor is to accomplish a stated job, and it is largely up to the independent contractor to determine when they work on the job and how that job is done.

Employee Basics:

On the other hand, an employee is a worker whom the employer “can control what will be done and how it will be done.”  Most people who fall under this category will work either full time or part time for an employer, they are subject to the employer’s human resources guidelines, employee handbook, and their benefits (if any) and pay taxed accordingly.

Do employment laws apply to independent contractors?

No.  As an employer, you may already know that employment laws are not intended to protect independent contractors, those laws apply to employees of the business. Thus, the following applies to workers classified as independent contractors:

  • Overtime Pay is not required to be paid to independent contractors
  • Minimum wage rules do not apply to independent contractors
  • Benefits are not required to be provided to independent contractors
  • Taxes (e.g., Federal, state, Social Security/FICA) are not required to be withheld by the employer for the independent contractor.  It is the responsibility of the independent contractor to file their own taxes.
  • Independent contractors are not entitled to unemployment benefits from the state

As an employer, why would I want to hire an independent contractor?

A company may consider hiring an independent contractor when the business is small, and the company does not want to deal with the burden of processing payroll and providing benefits.  In addition, small businesses can eliminate the need to file taxes on behalf of their workers, and reduce overhead with independent contractors.

Keep in mind that an independent contractor is not bound by the employer’s rules and human resources policies, and thus may be less likely to be loyal or feel a particular affiliation with the employer.  Also, because the independent contractor has the ability to choose the project or work that they do, there may be a lessened degree of control over the independent contractor.






» Newer posts