Monday, February 10, 2014

Confidentiality Agreements and Independent Contractors



How many companies hire independent contractors and allow them access to all the company information; probably more than you think.

In a recent Massachusetts Superior Court case, C.R.T.R., Inc. v. Lao, et al. the court granted summary judgment to the defendant independent contractor stating that because the company did not require him to sign a confidentiality agreement, the company could not later sue him for misappropriation of trade secrets.

The plaintiff company apparently had brought aboard the defendant contractor —the nephew of a customer who was negotiating to buy the company — to help run the business. When the negotiations fell through, the defendant resigned and allegedly absconded with customer lists, accounting records and other confidential information, leading to the misappropriation suit.

The defendant contended that he could not be held liable for misappropriation because the plaintiff had not taken sufficient measures to protect such information.

The court rejected the plaintiff’s argument that testimony from two employees that they understood the information to be confidential showed that proper steps had, in fact, been taken to protect the company’s trade secrets.

In granting summary judgment to the defendants, the court said that there was no evidence of a policy regarding confidential information and that the company never required the defendant contractor to sign a confidentiality agreement, something that was undisputed. Furthermore, the judge said, one of the employees testified that the customer lists were available on the computer and that the plaintiff had advertised certain contracts on its websites.

While this case may be appealed, the issue remains.

When your company retains an independent contractor regardless of the length of time of the engagement, it is a good practice to always require the person to sign an agreement that clearly states that all proprietary company information including, but not limited to customer lists, pricing information, marketing information and other trade secrets are owned by the company and that the independent contractor has no rights to the information.

It is also good practice to mark the information as company confidential or proprietary and to make sure your employees follow the same procedures to make sure such information is not treated in any way that would make sure information public.

If you have any questions or would like additional information on this issue or other corporate challenges, please contact Paul D. Creme. I have helped companies draft this type of agreement in New Hampshire and Massachusetts.


Paul D. Creme is an attorney with Hamblett & Kerrigan PA.  His practice is focused on business and corporate law. Of particular interest are the areas of software and emerging technologies.  You can reach Attorney Creme at pcreme@nashualaw.com.