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As the economy ebbs and flows, more and more people find themselves working as Consultants, rather than as hourly or salaried employees. This is particularly true in the Information Technology area. Companies will often have a short-term need, for instance, for help in setting up an ecommerce application, where it doesn't pay to hire a full time employee. There may be budgetary considerations, which allow the hiring of consultants, but not employees. Whatever the reason, the consultant is here to stay.

The relationship between a consultant and a company who wants to utilize his or her services is best spelled out in a written contract The contract should cover such areas as the nature of the services the consultant will provide, the length of the engagement and payment terms. Remedies for breach, such as the recovery of interest and attorneys’ fees in the event of non-payment, are customary. Consultants often look to limit any damages they may be forced to pay to the amount received under the contract.

In this article, we will discuss several provisions, which, in one form or another, appear in most IT consulting agreements. They are confidentiality and trade secret protection, intellectual property ownership and covenants not to compete.

Most companies employing consultants will insist that a consultant agree to keep strictly confidential all information, proprietary and otherwise, that the consultant learns as a result of the assignment. What is "Confidential Information" is typically broadly defined. The company has a legitimate business interest in keeping its business activity and plans secret from its competitors. Typically, a company will insist that the information be kept confidential unless and until the information becomes public knowledge through legitimate channels, with no wrongdoing on the part of the consultant.

Coupled with or part of a confidentiality provision is often a trade secret protection clause. A trade secret has been defined as "any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving material, a pattern for a machine or other device, or a list of customers."

Trade secrets are entitled to protection under civil and criminal laws even in the absence of an agreement. If a consultant was working for Coca-Cola and came across the secret formula for Coke Classic, he would divulge it at his peril. A trade secret can lose its protected status if it becomes known or is otherwise not dealt with in a confidential manner. If the president of Coca-Cola shares the Coke formula with one of his golfing buddies at Augusta National, and someone else in the foursome shares it with the Atlanta Constitution newspaper, there is likely no trade secret violation if the consultant tells his friends the formula.

Confidentiality provisions are a legitimate and necessary component of consulting agreements.
Intellectual property ownership clauses are frequent in IT consulting agreements. If a consultant is hired to create software for a customer, the customer might reasonably believe that it owns the software. Absent a provision in the consulting agreement to the contrary, this is likely not the case. The intellectual property belongs to the creator, in this case, the consultant. A well drafted intellectual property clause will recognize both the customer's need to own the product and the consultant's desire to be able to utilize the knowledge acquired in developing the software on other projects.

Covenants not to compete are most often found in contracts between consultants. For example, XYZ Consulting Company may have an agreement to provide Acme Manufacturing with an Oracle Database consultant. XYZ doesn't have anyone on staff with the necessary skills, so it hires Joe Consultant. XYZ will want to have a provision in its contract with Joe that will prevent Joe from competing with XZY by going to Acme directly. Typically, Joe will have to agree, that for one year or longer, he won’t seek employment with any of XYZ's customers without its consent. XYZ may also want to limit Acme's ability to hire away its employees or consultants. This is usually called a non-solicitation clause.

There are legitimate business reasons for these types of clauses. I have seen some that are too broad and overreaching, but good faith negotiating can resolve most disputes. If anyone has any questions, feel free to e-mail me at fgp@danburylaw.com.