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Should You Sign Non-Compete/Non-Disclosure Agreements?

Should You Sign Non-Compete/Non-Disclosure Agreements?

Not in most cases. Our litigious US culture and organizations’ lack of differentiating ideas are my main reasons. Read on for the surprise reason. 

(Before continuing, please understand my thoughts are for people who desire to have a long term advisory relationship with an organization [client]. For one-time engagements, my stance is a bit different.)

Tonight, I read an article at “Ask the VC” about Non-Disclosure Agreements. The premise of the site is to help those interested in learning about venture capital about common questions. The article explains why most VCs do not sign non-disclosure agreements.

Here’s a telling quote:

Reputable VCs, however, aren’t going to go around town blabbing about your plans. Besides, if I pass on your deal, I really don’t see the reason why I’d want to talk about it.  And if I fund your deal, I’m certainly not going to do anything to injure my investment.

This quote reminded me I can help consultants think about whether to sign NDA’s and NC’s.

Non-Disclosure and Non-Compete Agreements are different. The premise behind both is the consultant is paid to understand, think, and advise — potentially implement. During the process and for some time afterward, the consultant should not talk about the work or compete with its client.  

Both type of agreements may be separate documents or contained in a service agreement. Some firms use both clauses in a service agreement and a separate document.

One must be careful when signing these. The terminology is generally overly protective of an organization’s assets. Prior to signing these documents, you should review the reasons you are doing business together — because you both bring value to one another, because you will continue to bring value to one another, and because there is at least budding trust. If you’ve gotten this far, surely an agreement can be arranged.

Just in case…

Litigation

Litigation in the US is too rampant for a solo consultant or small firm to risk signing an agreement that is too one sided. One must keep legal costs in mind — think worst case! — one week of an attorney’s time to respond to a claim will cost at least $8,000.00 not to mention the negative drain on your energy. In a perfect world, we would never work with those who would sue or threaten to do so, but your fees and policies must protect you from our imperfect world. When you enter into an agreement, you are binding yourself to the clauses in the agreement. It would be preferable to have no agreement than a one-sided (bad) one.

Lack of Uniqueness

There’s another reason to be wary of these agreements. As a consultant, you probably work on similar projects for similar businesses. People hire you because you are good at what you do. What are the odds that your client is truly unique and needs protection of an idea or business for more than a few months?

If you are an advising consultant, you are likely to be more unique and work with clients who are farther from acting on the advice you give. The term, if you sign an agreement, may be longer for this reason alone.

If you are an implementing consultant on short term assignment, you probably should avoid signing anything. You are being paid to “do” and the secret part of the work is long over.

Specific Items: Non-Disclosure Agreements

There’s a reason your client may want you to talk about your work. Its a form of marketing — and a very potent one. If you are a consultant it may be presumed you are working with other high profile folks. Read another way, you are in a position of influence.

Another reason: the grapevine. Why put yourself and the client in a situation where you are legally bound to keep quiet about things that the client’s employees will talk about in a few short months?

Final Word: Non-Compete Agreements

You are not going to compete with your client unless you want to run out of clients. Great consultants are trusted advisors who gain business through referral. You cannot get referrals if you do not have the trust of your clients.

This is not an exhaustive list of considerations — if you have ideas, let me know.

About the Author

Bill DotsonSee the About page (linked at the top of this page)View all posts by Bill Dotson →