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Non-Disclosure and Non-Compete Agreements With Financial Services Employees and Contractors Aug. 21, 2000 (SmartPros) An acute sense of distrust and suspicion seems to run rampant in the business world today, judging from the number of organizations that require consultants, independent contractors and, in some cases, new employees to sign non-disclosure agreements (NDAs). Non-compete clauses are often added in but sometimes completely separate non-compete documents are used. This sense of distrust is puzzling since it has become more prevalent at a time when many corporations and their management have rededicated themselves to a sense of community, corporate responsibility and strong business ethics. If this is the environment in which the corporate community functions, why at the same time is there so much concern about the potential dishonesty of workers?
The Trends
Some of the blame may be placed with the high tech industry, especially with Internet start-ups that ask potential consultants and employees to sign NDAs. This generally takes place before the company will share any information with the individual about its products, services or ideas. These new online entrepreneurs are scared that someone will steal their concept before they have an opportunity to make it "live." Perhaps this high degree of suspicion has rubbed off on the corporate community as a whole.
In fact, one can now find NDAs being signed in every sector of the business world. Most agreements are very general, lacking timeframes; in the case of non-compete clauses, NDAs can make it impossible for a competitor or client to be contacted by the signer -- for one, three, even five years!
Business Codes of Ethics Provide an Answer
The most perplexing part of this NDA/non-compete fever is the fact that professionals in many different industries are already bound by codes of ethics that address the same points as NDAs do and more. According to an article by Andrew T. Olson, on the Center for the Study of Ethics in the Professions Web site, "Codes of ethics are to be reflections of the morally permissible standards of conduct which members of a group make binding upon themselves. These standards of conduct often reach beyond or delve deeper into societal morality in order to give guidance to people within a group of issues that are specific to the group." One of the most important reasons that codes of ethics are effective in influencing behavior is that the codes are written specifically for an industry by professionals who work in that particular industry. The financial industry is an excellent example of professionals adhering to a code of ethics. It's crucial that they do, since professionals in this field have access to significant information about their clients -- whether they're corporate clients or individuals.
The International Association of Financial Planners' Code of Ethics, 1998, consists of seven canons calling planners to adhere to high standards of morality and integrity. Not only is non-disclosure of confidential information covered in the code but it also notes that a member shall always place the best interest of the client above his or her own (or his or her company's). Specifically, the code notes that members should not allow "the pursuit of financial gain or other personal benefit to interfere with the exercise of sound professional judgment and skills."
The Association also has formal procedures for clients and others to lodge complaints against potentially unethical behavior on the part of planners. There are severe consequences for members who have had legitimate complaints lodged against them -- up to and including removal from membership and Registry. The Association for Investment Management and Research includes similar comprehensive wording in its code of ethics.
Are NDAs Really Necessary?
Requesting that a potential consultant sign an NDA hardly serves to build up a trusting, open relationship. There are several points to consider regarding whether or not there's a real need for consultants to sign non-disclosure agreements:
For Consultants -- What to Watch for in NDAs
Financial planners -- or for that matter any consultants -- being asked to sign NDAs and/or non-compete agreements should be sure to read the agreements carefully and perhaps have an attorney review them as well. Here are some important facts from an article by attorney Stephen Fishman that appears on www.guru.com/channel/legal/guide/G11601.jhtml entitled "How NDAs and non-compete agreements could kill your guru career."
Legal Trends
Many states frown upon extremely general NDAs and non-compete documents, often siding with the consultant or former employee rather than the corporation, according to several sources. "Courts generally look on such agreements with disfavor and will only enforce them if the terms are reasonable and enforcement serves a legitimate interest of the company," states Fishman. The Medical and Public Health Law Web site (plague.law.umkc.edu/ieee/dut204.htm) had this to add, from an article entitled "Non-competition and Non-disclosure Agreements": "In most states, non-competition agreements which impose unreasonable time or geographical restrictions are either void or can be reformed by the courts to operate in reasonable limits."
Proactive Steps for Consultants to Take
Notes
"Duties of an Ex-employee," plague.law.umkc.edu/ieee/dut204.htm. Fishman, Stephen, "How NDAs and non-compete agreements could kill your guru career," www.guru.com/channel/legal/guide/G11601.jhtml (guru and magi links not found). Michelman Esq., Sanford, "Should Employees Sign A 'Non-Compete' Agreement? How to Keep Your Trade Secrets Secret," www.ashlandweb.com/oregonlaw/column7.html. Olsen, Andrew T., "Authoring a Code: Observations on Process and Organization," Center for the Study of Ethics in the Professions, and examples of International Association of Financial Planners' Code of Ethics, 1998, quoted, csep.iit.edu/codes/. Resource Strategies, www.rsic.com. Rodex' Code of Ethics. Please send your comments, questions and article proposals to information@smartpros.com.
2000, Smartpros Ltd. All Rights Reserved.
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