I know you’re not a legal consultant.
Does that mean, you will sign the NDA for your software contract without reading the clauses?
When Priya Matthews (name changed) won a big IT project from a Dutch conglomerate, she was in cloud nine. Her design agency, which she started 18 months back, develops eCommerce websites with Magento and WordPress platforms.
It was not a cakewalk till she received the legal document from her client. From that point onwards, both parties were unable to agree to the clauses of Non Disclosure agreement or NDA. Discussions tuned into arguments and eventually lead to withdrawal of the project.
Do you think Priya could have acted smartly and accepted their clauses? Or hired a legal team to make certain points neutral to both parties. Do you consider her, not so smart business women who could have sign the dotted lines on trust?
Can you afford to lose on a project worth € 25000? If you are the owner of a small business, should you accept all the terms to please the client?
Often such questions will hit your mind. Different personalities respond in different ways. For some, strong ethics is important, for others chasing the money and bottom line becomes a priority.
Let me share my experience at Invimatic and what prompted me to write an article on the subject to help our community.
By implementing this, you will be informed as a scrappy entrepreneur to deal with clients better:)
Recap 2018: My Entry to the Legal Document Realm
My job involves client interaction, creating proposals and getting legal document signed from both parties. It was the task of our HR to read through the legal documents and come across queries,
if any. As we started growing and closing deals, the request for reviewing NDA and consulting agreement increased. Soon, I was introduced to the process and put comments before we sign any stuff.
Initially, I was disinterested, as I had to invest time in reading and re-reading, re-reading between the lines to understand. Yes, it was testing. This is one of the fascinating things on working with startups. It will test your character.
There was a time, when I, our HR and founder sat for hours debating and questioning each agreement clause.
Finally, I decided to create interest in the subject. It was new for us (our HR). Honestly, I have seen people signing documents without giving care and attention at workplace.
By that, I mean, not diving deep and understanding the nuances,
it offers. It was Raghava mixed with my interest that helped me learn the importance of legal documents at workplace. More specifically, for software consulting work.
Wait, you must be wondering, the headline is about Guide to NDA and we are still not into it. Why?
It is important for me to establish a connection so that you can relate to at some point at your career.
If you are starting a consulting business or building a product, you must spend time to understand the legal aspects of the business. In the lure of scaling your business, often NDA’s or legal documents are considered a formality here.
You will hear, commentators saying, no one expects a conflict or bitter relationship with clients. Yes, I do agree, no one does that to hurt their business.
But do you know the hazards of signing a legal document without proper knowledge can hit your company credentials. I am making an effort to explain some of the important clauses, you should not overlook when signing a contract with your client.
Who is a Scrappy Entrepreneur
We are living in a world where you are known by the labels. So, it is true for start up arena too. Scrappy entrepreneurs are those who have self funded their start ups, or bootstrapped their business to grow, not relying on initial investor funding.
They are the ones who have a DIY spirit and take necessary measures to spend judiciously.
For example, they invest time in meetings, recruitment, marketing campaign, setting up office, networking and so on.
There is no time for dress rehearsals. You have to take action with your gut feeling.
Time is really valuable for early age businesses, so they ensure, it is utilised.
What is Non Disclosure Agreement
Investopedia defines NDA as
“A non-disclosure agreement (NDA) is a legal contract between two or more parties that signifies a confidential relationship exists between them.
The confidential relationship exists because the parties share information among themselves that should not be made available to any other parties outside of those involved, such as competitors or the general public or. An NDA may also be referred to as a confidentiality agreement.”
So, if you have bagged a software project from an international client, you will sign an agreement that states that you (receiving party) needs to
- secure confidential information,
- avoid data breach
- avoid sharing in public domain
It sets the tone for kick starting the project. Often clients value companies who give importance to documentation or legal process.
Even, I too stress on creating useful information for readers or clients to create an impact for a winning proposal.
Any information relevant to your project is considered confidential. I am sharing an example of a confidential information clause here.
The Disclosing Party is the party giving confidential information – your potential client or business partner. The Receiving Party is the party getting the information – you/your company. Typically, any information shared via written, oral, electronic or virtual format is deemed to be confidential.
To summarise, it simply means, If you are the receiving party, you will not disclose
- Trade secrets
- Computer programs
- Customer Data
- Technical or financial information
The clause speaks about the integrity you need to maintain before undertaking a project. If your team takes necessary measures, things will fall into place.
Another important operative point overlooked is disclosure of facts to colleagues who are not part of the project. It is a common practice.
For example, if one of your developers responsible for project delivery is finding it difficult to develop a piece of code. He takes a help of his colleague who has got knowledge, but not actively working on the project. What should you do? Should the developer disclose the information to the colleague so that he can assist on the project.
I have raised this question with my senior, They thought it was a serious issue and immediately reacted.
Result: All “representatives” sign the NDA clause. Even though the colleague was not actively involved, but it keeps the clause intact and safe.
If you are a recipient party, you should ensure that the information window is spread to whom the recipient party will collaborate.
Non Use of Existing Information
I love Discordapp for professional discussion and work engagements. Recently, I saw a post from a mobile app developer looking for work. It states this.
I was shocked to see the statement on public forum. This brings me to a debate, how do you measure the secrecy of your business information or the code base. Does that make working with remote freelancers risky?
In my view, software engineers should be made to sign NDA. Management should put checks to avoid violation of NDA. A typical scenario, that comes to my mind is reusing the code for two similar applications.
If your team member is reusing the code from another application or from public source, it should only be accepted, as long as the modification is done.
I have seen clients criticize Indian services firm for not adhering to legal agreements. In reality, I have even seen founders involve sub contractors, without approval from the client. If your client trusts, should you not reciprocate trust?
If you do not have a certain technology capability, speak with your client directly and assure them that the benefits of subcontracting for the success of the product development.
If you do not follow the tips, it can become problematic.
I have seen clients sue vendors if confidentiality clause is broken. If your relationship is valuable with client or not, these days, any consulting or project development requires to sign NDA and acceptance of confidential information.
Always seek an approval or suggestion from your client before sharing information. You need to educate new hires or tenured employees about the importance.
If any of the points from the agreement are not clear, write a comment and seek advise. More clarity you have, it will benefit you and your company to have a broader view of the work.
Tip: You must check the exclusions and get clarity of publicly available information.
Non Compete Clause
The non compete clause often scares the young entrepreneurs who are working with international clients. I will share a real life scenario that was a discussion point before we signed the agreement. I am sharing the image for your reference.
We were in discussion for building a web application project. After the cost agreement, client shared their legal documents—Non Compete document.
When I first read the clause, it looked dubious to me. After discussion with our HR and Legal team, we decided to write a note to the client about our concern. What were our concerns?
- Why Invimatic cannot offer its services anywhere USA
- As a B2B software service provider, we follow professional ethics and will never cross the line. But some of the points in clauses were just not acceptable at face value.
- We suggested it should be within the territory of the state
- Why is there restriction on any foreign country in which client has presence
- For example, if you have a business running in ten countries, does that mean, Invimatic cannot offer its services. For me, it was not acceptable.
- We do not have the list of your customers, nor do we have any visibility on the clause.
- What do you mean by: “we cannot market or sell services where your affiliates are”
- After series of emails, we got into a call to speak to the client. He was surprised by over involvement on the legal agreement.
- Our Founder, raised his concerns and we sorted out that the Affiliates—simply means their customers.
- It becomes so difficult to read through every word and translate into a meaning acceptable to all.
- If you look at the point above, it says, employees cannot work with entities who are competitors of client, nor they can in association with others solicit the customer of the company.
Non-competes are commonly used in consultant or employment context. But they’re sometimes used by parties discussing business deals.
Tip: You must ask the disclosing party (client) to make it mutually acceptable. For example, reducing the term from 5 years to 2 years. Hire a lawyer to make better legal decisions.
I have seen clients prefer to have the laws and governance in their own state and country. You need to ask the same question, do you have a presence in the country they are proposing governing laws?
If your client is based in US or Germany, they will propose the laws of their own country. A sample governing laws clause looks like this
In case of any disputes, it can create chaos for you. Both parties will need a jurisdiction to resolve conflicts, if it arises. You will need to be very careful before agreeing to the clause. Material or contract breach can cost huge money erode your bank account.
I am sure, none of us would want to think of such events. But, these events are common in corporate world, as you scale, you will see the boardroom discussions loaded with penalizing and loopholes to get around.
If your client is concerned, you should also show your concerns. If you want to work with them, it should not be one way only. I have seen most services firm succumb to the pressure of losing the work.
They agree to the clauses and undefined scope of work. In result, repent for their action.
An ideal situation would be go for a common destination, be it Singapore or UK. This could be an economically viable option, if you are in India or in other Asian country
Tip: You need to look for an affordable option, if you are agreeing to the laws in which your entity does not have any presence.
In simple terms, a non solicit clause means, you or your client cannot approach employees or consultant of either companies for a defined period. I have an interesting story to share.
One of my professional friends Rana, was working for a software development firm in Pune. Their client was based in Bengaluru.
It was a big revenue generator for the client. Rana along with other engineer, were the main point of contacts. As the project grew, their performance exceeded expectations.
Now, here is the twist in the tale. The client service manager sent an invitation on Linkedin to Rana. So, this is how professionals connect now—online social media.
As the relations between companies strengthen, so did Rana’s equation with the manager. During their chat conversation, Sathya offered him a job at 2X the current pay. Rana got lured to the offer and wanted to latch up fast.
He put down his papers. This event was not taken up easily by his employer. They saw it as a violation of non-solicitation by the client.
Sathya and team argued they are doing this a year after the end of the contract. Rana’s company said it is clearly stated in the agreement that
“The company can not employ or make an offer of employment to an employee of the vendor within a period of 2 years after the end of this agreement.”
Rana’s company decided to take this heads on. I was told once, that business heads of both companies are ambitious and egoistic. You know, how ego prevails over simplicity in the business world. None of the founders were able to accept the disputes stretching the line.
The vendor filed a legal case. This was a case of violation and it led to financial damages.
Sathay was fired for his unethical approach; Rana was removed from the existing project. Parties ended the contract.
As you can see your Linkedin activity can violate non solicitation agreements. .
For employees, they should spend time with seniors and hiring managers to know about legality of any business.
Employers argue that LinkedIn invitations are an easy way for employees/vendors to solicit clients under the guise of connecting on a social network.
Tip: Any enticement by a client or former employee, should be discussed in public forum. If you are not making a sales pitch, you should be fine linking on Linkedin.
Do Both Parties Sign NDA
In my experience, I see that both parties sign the NDA. But, are we missing something?
NDA is usually unilateral. If you are the recipient party to the contract, you are receiving the confidential information, so you should be signing the NDA, not your client. It does imposes legal obligations and indemnification to your company.
We, at Invimatic sign mutual NDA. Though, as a service provider, we have to safeguard the interest of the clients. At times, we have also been asked to share business details.
In my understanding, a mutual NDA will benefit in case of mergers or joint venture between firms. Or, in case multiple parties are involved in confidential information exchange.
If you are legally competent or not, you must take effort to read the fundamentals of the legal agreement. This will help you in taking sound business decisions.
You can manage your partners, educate your employees and debate with legal experts over different subjects.
You can be valued in the ecosystem for strong morals or ethics. Do make an effort to stand out.
If you are striving hard to be the next unicorn, make sure you got the legal metrics adjusted.