Who’s More Trustworthy with Confidential Information?
W2 vs. 1099
In several conversations over the years, founders have told me that they prefer a VP of Sales to be a W2 employee rather than a 1099 contractor, citing concerns over access to and control of sensitive business information. This perspective raises an important—and often overlooked—question:
“Are W2 employees more trustworthy with proprietary information than 1099 contractors?”
At first glance, it may seem that full-time employees are more committed, more aligned with company values, and thus more reliable stewards of confidential information. But the legal framework tells a more nuanced story.
The Growing Role of NDAs
According to recent data, nearly one-third of the U.S. workforce is bound by a non-disclosure agreement (NDA). These agreements are increasingly used to protect not just trade secrets but also corporate reputation and competitive positioning.
Most commonly, NDAs are unilateral and signed as a condition of employment, as part of severance packages, or during settlements. There are four core reasons why employers should require them:
1. Preventing information leakage after departure. An NDA ensures that employees remain obligated to protect sensitive data, even after their tenure ends.
2. Psychological deterrent. Awareness of legal consequences discourages misuse of information.
3. IP clarity. A well-drafted NDA can define ownership of any intellectual property created during employment.
4. Defining confidentiality. Employees don’t always know what counts as confidential—NDAs help make that explicit.
In short, NDAs are a foundational tool for protecting sensitive information, but they’re not exclusive to employees.
Independent Contractors Are Not Exempt
Contractors—especially fractional executives or consultants—often serve multiple clients, work remotely, and manage their own businesses. These characteristics introduce risks, but they also make a compelling case for including robust confidentiality clauses in service contracts.
A properly structured Service Agreement for a contractor should include language mirroring that of an NDA. For example:
“Contractor and its employees, agents, and/or representatives shall not… divulge, disclose, and/or communicate in any manner, any information that is proprietary to Client… This provision shall continue to be effective after the termination of the Contract…”
This clause should be enhanced with:
A clear definition of “Confidential Information”
Examples specific to the client’s business
Provisions regarding the return or destruction of materials
A separate clause on Work Product Ownership and IP
The takeaway? Just because someone is a 1099 does not mean your sensitive information is at risk—provided the legal agreements are sound and specific.
What the Data Tells Us
If you believe W2 employees are inherently more loyal or less risky, the legal data might surprise you.
Trade secret litigation has grown exponentially, doubling roughly every decade since the 1980s.
In federal trade secret misappropriation cases, 59% of defendants were current or former employees. Only 9% were third parties (which includes contractors).
In 2020, plaintiffs prevailed in 68% of trade secret cases. Interestingly, employees fared slightly better than third parties—but the differences were not statistically significant.
This suggests that the risk of breach exists on both sides of the employment spectrum - and is more a function of behavior and oversight than employment classification.
Sales Roles: A Special Case
Sales professionals often sit closest to the customer, armed with knowledge of client relationships, pricing, contract terms, and competitive positioning.
Whether W2 or 1099, a departing sales executive can carry significant implicit value—or risk—with them. That’s why having enforceable NDAs or confidentiality clauses, coupled with exit protocols, is essential to protecting business continuity and competitive edge.
The Bottom Line
There is no inherent legal or behavioral evidence that suggests W2 employees are more trustworthy than 1099 contractors when it comes to confidentiality. What matters most is:
A clear and enforceable agreement
Delineation of confidential information
Clarity around ownership of work product and IP
Reinforcement through onboarding and offboarding practices
In short, trust is important—but contracts are better.
If you're considering engaging a contractor in a sales leadership role, talk to us. At Vendux, our Service Agreements are designed to protect your business while enabling results. And yes, we always recommend adding a strong confidentiality provision—because good fences make good partners.
Disclaimer: This article is not a substitute for legal advice. Always consult a qualified attorney for guidance on contracts and NDAs.