California Law Focus
Before onboarding any client, understand how California law shapes your contract options. Two statutes directly impact client-facing agreements.
Business & Professions Code 16600 - Non-Competes Void
California voids non-compete agreements. You CANNOT restrict a client from hiring other developers, working with competitors, or building similar products after your engagement ends. Any clause attempting this is unenforceable and may undermine your entire agreement. Focus instead on protecting actual trade secrets through properly scoped confidentiality provisions.
NDA Enforceability in California
California courts enforce NDAs protecting legitimate trade secrets (defined under Civil Code 3426), but are skeptical of overly broad confidentiality clauses. General business information, publicly available data, and information independently developed by the receiving party cannot be restricted. Your NDA must clearly define what constitutes confidential information and include standard carve-outs to be enforceable.
When to Use NDAs
Not every conversation requires an NDA. Use them strategically to protect genuinely sensitive information without creating friction in your sales process.
Discovery Calls
For initial discovery calls, a mutual NDA protects both parties when discussing project requirements. The client may share proprietary business processes, while you may discuss your technical approaches. Key timing considerations:
- Before technical deep-dives: If the prospect will share source code, architecture diagrams, or database schemas, get the NDA signed first
- Before pricing discussions: Your pricing models and cost structures may be confidential
- Before team introductions: If sharing team member names and capabilities, protect against poaching
RFP Responses
When responding to Requests for Proposal, you often reveal significant intellectual property: technical approaches, architecture recommendations, and estimated timelines. Request a mutual NDA before submission if the RFP requires detailed technical proposals. Note that some enterprise clients have their own NDA templates - review carefully for California compliance.
Master Services Agreement Essentials
The MSA establishes the framework for your entire client relationship. Get these elements right to avoid disputes on every subsequent project.
Core MSA Components
| Component | Purpose | California Considerations |
|---|---|---|
| Payment Terms | Net terms, late fees, expense handling | CC 3287/3289: 10% prejudgment interest available |
| IP Ownership | Who owns deliverables and background IP | Must be explicit - no automatic work-for-hire for software |
| Limitation of Liability | Cap your exposure to contract value | Enforceable for commercial contracts in CA |
| Termination Rights | Exit procedures for both parties | Include payment for work completed through termination |
| Governing Law | Which state's law applies | California choice of law respects party autonomy for B2B |
| Dispute Resolution | Arbitration vs. litigation | CA courts generally enforce arbitration clauses |
MSA vs. Project Agreement
The MSA contains terms that apply to ALL projects. Individual Statements of Work (SOWs) reference the MSA and add project-specific scope, deliverables, and pricing. This structure means you only negotiate general terms once, then focus SOW discussions on project specifics.
Retainer Structures
Retainers provide predictable revenue and client commitment. Structure them correctly to avoid disputes about unused hours and scope.
Monthly Minimum Retainers
Client commits to a minimum monthly spend (e.g., $10,000/month). Hours used beyond the minimum are billed at the standard rate. Unused hours typically do NOT roll over. This structure works well for ongoing maintenance, support, and ad-hoc development needs.
Prepaid Hour Blocks
Client purchases a block of hours upfront at a discounted rate (e.g., 100 hours at $150/hr instead of $175/hr). Hours are drawn down as work is performed. Typically expires after 6-12 months. Better for clients with variable but predictable needs.
Key Retainer Terms
- Rollover policy: Do unused hours roll to next month? Most agencies say no.
- Expiration: Prepaid hours should expire (6-12 months typical)
- Rate lock: How long are rates guaranteed? Annual increases common.
- Scope boundaries: What work is in-scope for retainer hours?
- Response time SLAs: Retainer clients often expect faster response
- Minimum term: 3-6 month commitment for discounted retainer rates
Red Flags in Client Contracts
When reviewing client-provided contracts (common with enterprise clients), watch for these problematic provisions.
Other Red Flags
- Non-compete clauses: Unenforceable in California but signal unsophisticated legal review
- Audit rights: Unlimited audit rights with no notice requirement or cost allocation
- Assignment restrictions: Preventing you from assigning payments (affects financing)
- Insurance requirements: E&O minimums exceeding $2-5M may be unreasonable
- Indemnification scope: Indemnifying for client's own negligence or third-party claims unrelated to your work
- Warranty periods: Warranty periods exceeding 90 days for custom software
Sample Contract Clauses
Copyable clause snippets for your client onboarding documents. Customize as needed for your specific situation.
MUTUAL NON-DISCLOSURE AGREEMENT
This Mutual Non-Disclosure Agreement ("Agreement") is entered into as of [DATE] by and between:
[CLIENT NAME], a [STATE] [ENTITY TYPE] ("Client"), and
[YOUR COMPANY NAME], a California [ENTITY TYPE] ("Developer").
WHEREAS, the parties wish to explore a potential business relationship involving software development services; and
WHEREAS, in the course of such discussions, each party may disclose confidential business and technical information to the other;
NOW, THEREFORE, in consideration of the mutual promises contained herein and the potential business relationship, the parties agree as follows:
1. PURPOSE. This Agreement governs the disclosure of confidential information during preliminary discussions regarding potential software development engagement. Either party may terminate discussions at any time without obligation, except for the confidentiality obligations herein which shall survive.
2. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information" means any non-public technical, business, or financial information disclosed by either party, including but not limited to: source code, system architecture, database schemas, product roadmaps, pricing structures, customer lists, and business strategies. Confidential Information does not include information that: (a) is or becomes publicly available through no fault of the receiving party; (b) was known to the receiving party prior to disclosure; (c) is independently developed without use of Confidential Information; or (d) is rightfully obtained from a third party without restriction.
GOVERNING LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflict of laws principles. Any legal action or proceeding arising under this Agreement shall be brought exclusively in the state or federal courts located in [COUNTY] County, California, and the parties hereby irrevocably consent to the personal jurisdiction and venue therein. Notwithstanding the foregoing choice of law, the parties acknowledge that certain California statutes, including but not limited to Business and Professions Code Section 16600 (voiding non-compete agreements) and Labor Code Section 2870 (employee invention rights), may apply to the extent any work is performed by California-based personnel, regardless of any contrary choice of law provision. The prevailing party in any action to enforce this Agreement shall be entitled to recover its reasonable attorneys' fees and costs from the non-prevailing party.
RETAINER ENGAGEMENT TERMS
1. MONTHLY RETAINER. Client agrees to pay a monthly retainer of $[AMOUNT] ("Monthly Minimum"), due on the first business day of each calendar month. The Monthly Minimum is non-refundable and represents a commitment to Developer availability, not a prepayment for specific hours.
2. HOURLY RATE. Services shall be billed at $[RATE] per hour. The Monthly Minimum includes [NUMBER] hours of service per month ("Included Hours").
3. ADDITIONAL HOURS. Hours exceeding the Included Hours shall be billed at the standard hourly rate and invoiced at month-end, payable within [NET TERMS] days.
4. UNUSED HOURS. Unused Included Hours do not roll over to subsequent months. The Monthly Minimum compensates Developer for maintaining availability and prioritizing Client work.
5. SCOPE. Retainer services include: [LIST SPECIFIC SERVICES, e.g., bug fixes, minor enhancements, technical support, code review]. Major feature development, new integrations, and projects exceeding [NUMBER] hours require a separate Statement of Work.
6. RESPONSE TIME. Developer commits to respond to Client requests within [NUMBER] business hours during the retainer term. Emergency support outside business hours is available at 1.5x the standard hourly rate.
7. TERM AND TERMINATION. This retainer shall continue month-to-month after an initial [NUMBER]-month term. Either party may terminate with [NUMBER] days written notice. Upon termination, Client shall pay for all services rendered through the termination date.
CLIENT RESPONSIBILITIES
Client acknowledges that timely performance of Developer's obligations depends upon Client's fulfillment of the following responsibilities:
1. DESIGNATED CONTACT. Client shall designate a primary contact ("Project Manager") with authority to make decisions, approve deliverables, and provide feedback on behalf of Client. Decisions made by the Project Manager shall bind Client.
2. TIMELY RESPONSES. Client shall respond to Developer requests for information, feedback, or approvals within [NUMBER] business days. Delays in Client response may extend project timelines on a day-for-day basis.
3. ACCESS AND CREDENTIALS. Client shall provide Developer with timely access to all systems, environments, accounts, and credentials necessary to perform the Services, including but not limited to: development/staging/production servers, version control repositories, third-party API keys, and database access.
4. CONTENT AND MATERIALS. Client shall provide all content, copy, images, branding assets, and other materials required for the project within the timeframes specified in the project schedule.
5. TESTING AND FEEDBACK. Client shall test deliverables and provide specific, actionable feedback within the acceptance period specified in the applicable Statement of Work.
6. DEPENDENCIES. Client shall ensure that any third-party services, vendors, or internal resources required for the project are available according to the project schedule.
DELAY IMPACT: If Client fails to fulfill these responsibilities, Developer may: (a) extend project timelines proportionally; (b) invoice for idle time caused by Client delays at the standard hourly rate; and/or (c) pause work until Client provides required materials, information, or access.
LIMITATION OF LIABILITY 1. EXCLUSION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES, INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOSS OF PROFITS, GOODWILL, DATA, OR OTHER INTANGIBLE LOSSES, ARISING OUT OF OR RELATING TO THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON CONTRACT, TORT, STRICT LIABILITY, OR ANY OTHER THEORY, AND EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 2. LIABILITY CAP. EXCEPT FOR (A) BREACHES OF CONFIDENTIALITY OBLIGATIONS, (B) INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS, OR (C) GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, EACH PARTY'S TOTAL CUMULATIVE LIABILITY ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL NOT EXCEED THE GREATER OF: (I) THE TOTAL FEES PAID OR PAYABLE BY CLIENT TO DEVELOPER UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE CLAIM; OR (II) [DOLLAR AMOUNT]. 3. ALLOCATION OF RISK. THE PARTIES ACKNOWLEDGE THAT THE LIMITATIONS OF LIABILITY IN THIS SECTION REFLECT AN INFORMED, VOLUNTARY ALLOCATION OF RISK BETWEEN THE PARTIES AND THAT SUCH ALLOCATION IS A MATERIAL PART OF THE BASIS OF THE BARGAIN BETWEEN THE PARTIES. 4. ESSENTIAL PURPOSE. THE LIMITATIONS OF LIABILITY IN THIS SECTION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 5. INSURANCE. Developer maintains professional liability (Errors & Omissions) insurance with coverage of at least $[AMOUNT] per occurrence. Certificate of insurance available upon request.
Contract Generators
Generate customized client onboarding contracts using our interactive tools.
Software Development NDA
Mutual NDA tailored for software development discovery calls and project discussions. California-compliant with proper trade secret definitions.
Generate NDAMaster Services Agreement
Framework agreement for ongoing client relationships. Covers payment terms, IP ownership, liability caps, and termination provisions.
Generate MSAFrequently Asked Questions
No. For general "getting to know you" calls where neither party shares genuinely sensitive information, an NDA adds friction without benefit. Use NDAs when: (1) the prospect will share proprietary technical details like source code or architecture; (2) you'll discuss your unique methodologies or pricing; (3) you'll review existing systems requiring access credentials. For standard sales calls discussing general project needs, skip the NDA and move faster.
California courts enforce NDAs that: (1) clearly define what information is confidential (avoid vague "all information disclosed" language); (2) include standard exceptions (public information, independent development, etc.); (3) protect actual trade secrets or legitimately sensitive business information; (4) have reasonable duration (2-3 years typical, perpetual for true trade secrets); and (5) don't function as disguised non-compete agreements. Overly broad NDAs that effectively prevent someone from working in their field will face judicial skepticism.
Use your own whenever possible - it's drafted to protect your interests. With enterprise clients, you may have no choice but to negotiate their template. In that case: (1) identify the five most important terms for your business (liability cap, payment terms, IP, termination rights, indemnification); (2) redline only those sections; (3) accept standard provisions that don't create significant risk. Negotiating every clause wastes everyone's time and rarely succeeds with large companies.
Be explicit in your agreement that: (1) the monthly minimum is for availability/priority, not a prepayment for specific hours; (2) unused hours do NOT roll over; (3) the retainer is non-refundable. Consider whether you're selling "hours" or "outcomes" - outcome-based retainers (e.g., "we maintain your site and respond to issues") avoid hourly tracking disputes entirely. For hour-based retainers, provide monthly usage reports so clients see their consumption patterns.
No - not in California. Business & Professions Code 16600 voids employee non-competes, and courts extend this skepticism to restrictions that effectively prevent people from working. What you CAN do: (1) include non-solicitation provisions preventing the client from actively recruiting your employees during the engagement and for 12 months after; (2) include a "hiring fee" provision (e.g., if client hires your employee within 12 months, they pay 25% of annual salary); (3) structure team introductions carefully to minimize direct relationships. But you cannot prevent your employees from accepting jobs elsewhere.