This scenario plays out more often than most tech leaders realize. When you hire through an Employer of Record, you're creating a three-party relationship where IP ownership can become legally ambiguous without the right contract structure. Add in LatAm's evolving data protection landscape—Brazil's LGPD, Argentina's EU-equivalent standards, country-specific IP frameworks—and the compliance picture gets complicated fast.
This guide provides the evaluation criteria, due diligence questions, and contract language you need to assess EOR security posture and IP protection capabilities before signing.
Table of contents
- Understanding SOC 2 compliance & security certifications
- Intellectual property ownership framework
- Data security & privacy compliance requirements
- Evaluating EOR provider security posture
- Confidentiality & non-disclosure agreements
- Owned entities vs. aggregator EOR models
- Sample contract language & template clauses
- Cybersecurity risks specific to LatAm hiring
- Creating your EOR evaluation scorecard
- FAQ: EOR security & IP protection
Understanding SOC 2 compliance & security certifications
What SOC 2 Type 2 compliance means for EOR providers
SOC 2 verifies controls for securing sensitive customer data across five Trust Services Criteria: Security, Availability, Processing Integrity, Confidentiality, and Privacy. Type 2 reports review compliance over an extended period, demonstrating continuous security practices rather than a point-in-time snapshot. All criteria are optional except Security, which forms the mandatory core standard for data protection.
B2B service providers with access to sensitive company data most commonly pursue SOC 2 certification. For EOR providers handling employee personal details, financial information, and performance records, this certification signals investment in secure infrastructure.
Essential security certifications to require
Start with these four certifications when evaluating providers:
ISO 27001 provides independent verification of meeting strict international standards for information security management systems. ISO 27018 specifically addresses cloud privacy and protection of personally identifiable information. SOC 2 Type 2 demonstrates secure data handling practices maintained over time. GDPR and CCPA compliance documentation proves adherence to regional data protection requirements.
Data breaches occur when providers lack these certifications, creating direct risk to your company and employee information. Third-party certifications provide independent verification rather than self-reported security claims that may not hold up under scrutiny.
Intellectual property ownership framework
The three-party IP challenge in EOR arrangements
Here's the problem: without robust IP assignment clauses, the EOR may be the first owner of IP developed by your worker, not your company. Workers cannot practically assign IP directly to you in most EOR structures. The IP must flow through a clear transfer chain: worker assigns to EOR, EOR assigns to you.
This ambiguity creates severe consequences during investment rounds or acquisitions. Investors scrutinize IP ownership chains as standard due diligence, and uncertainty delays deals, reduces valuations, or kills transactions entirely.
Critical IP assignment clauses for EOR contracts
Your contracts need explicit language stating that IP developed during employment belongs to your company, not the EOR or employee. Coverage should extend to manual, digital, and AI-assisted work products including code, designs, documentation, and inventions. Work-for-hire language ensures all deliverables belong exclusively to you.
Understanding how EOR contracts work in Latin America is essential for structuring proper IP protection. Verify IP assignment language appears in both the employment agreement (EOR-worker) and commercial agreement (EOR-client). Without proper transfer clauses in both documents, work created could legally belong to the employee.
Country-specific IP laws across LatAm
Most countries grant employers IP rights unless the employment contract states otherwise, but this protection doesn't exist everywhere. French law, for example, automatically grants creators ownership unless they explicitly agree otherwise in contract.
Each LatAm country maintains its own IP framework with varying stringency. When hiring engineers in Brazil using an EOR, you need to understand Brazil's specific IP requirements. Use NDAs, work-for-hire agreements, and IP assignment clauses ensuring all deliverables including code and designs belong exclusively to your company.
EOR models that better protect IP
Employment relationships structured correctly provide clearer, more enforceable IP ownership than independent contractor arrangements. The EOR model reduces risk of contractors walking away with created IP compared to direct contractor engagement.
Product-led, SaaS, and technology companies face the highest risk with misclassified contractors. Code, designs, and proprietary processes become legally ambiguous assets when classification is wrong. Protecting IP with remote engineering teams requires careful attention to employment structure and contract terms.
Data security & privacy compliance requirements
Core data protection standards for EOR providers
At minimum, your EOR should implement industry-standard encryption for data at rest and in transit. Multi-factor authentication (MFA) for system access, role-based access controls preventing unauthorized data access, and secure data centers with restricted physical security form the baseline.
Leading providers invest in advanced encryption technologies and conduct regular security audits. These measures protect against breaches that could expose employee personal details, financial information, and company data.
GDPR compliance in EOR context
Under GDPR, the party determining purposes and means of processing employee personal data is the data "controller." If the EOR and your company decide on purpose and means together, you're joint controllers, both responsible for GDPR compliance.
As data controller, you're liable for noncompliance penalties: €20 million or 4% of annual turnover, whichever is higher. EORs must implement consent management, conduct regular compliance audits, and maintain robust data security measures. Ensuring nearshore teams comply with GDPR and CCPA requires careful vendor selection and contract terms.
Latin America data protection laws
Brazil's LGPD, passed in 2018, is a comprehensive law modeled after GDPR that replaced over 40 contradicting norms. Argentina became the first LatAm country achieving EU "Adequacy" qualification for data transfers.
Chile (1999) and Argentina (2000) were earliest adopters. Uruguay, Mexico, Peru, Colombia, Panama, and Barbados followed, with contemporary GDPR developments heavily influencing the region. Understanding payroll and benefits compliance in LatAm helps you navigate these country-specific requirements.
Data residency and cross-border transfer requirements
EORs must follow data residency laws in regions where your remote staff operates. European Union GDPR and country-specific LatAm laws govern where employee data can be stored. Regular audits ensure data protection practices align with requirements and identify vulnerabilities.
Data transfer mechanisms between jurisdictions require specific legal frameworks and adequacy determinations. Verify your EOR has proper data processing agreements covering cross-border transfers.
Evaluating EOR provider security posture
Essential due diligence questions
Entity ownership & structure: Do you own legal entities in target LatAm countries or outsource to third-party partners? How do owned entities versus aggregator relationships affect compliance consistency?
Data security & encryption: What encryption methods protect data at rest and in transit? Describe access controls and role-based permissions for employee data. What is your data recovery plan if system failure occurs?
Compliance & auditing: Which certifications do you hold (SOC 2 Type 2, ISO 27001, ISO 27018)? How do you ensure GDPR and LatAm data protection law compliance? Provide documentation of regular compliance audits and security assessments.
IP protection mechanisms: How do you safeguard intellectual property and invention rights in each country? Show written policies on IP management requiring employee IP assignment to client. What IP assignment language exists in both employment and commercial agreements?
Incident response: Describe your incident response plan for data breaches or security incidents. What breach notification timelines do you commit to? How do you handle data subject access requests from employees?
Red flags in EOR security evaluation
Vague contract language about security, data protection, compliance, and liability should raise immediate concerns. No documented data recovery plan for system failures indicates inadequate preparation.
Providers who allow workers to commence before paperwork is processed are cutting corners on compliance. Frequent fines, compliance issues, or legal disputes indicate reliability problems. Sharing employee data with third parties without clear data processing agreements violates basic security principles.
Compliance reporting & transparency standards
Leading EORs provide detailed, regular compliance reports offering a transparent view of their security posture. Request case studies, certifications, and compliance audits demonstrating ability to adhere to labor and data laws.
Clear documentation is essential for managing regulatory obligations. Proof of compliance should include specific audit results, not just certification logos on a website.
Confidentiality & non-disclosure agreements
Essential NDA components for EOR employees
A legally enforceable NDA creates a confidential relationship, establishing legal duty to keep information confidential. Coverage should extend to trade secrets, client lists, internal processes, proprietary methods, pricing information, and security procedures.
Protection extends beyond employment, applying during tenure and after termination. The scope should be specific and tailored to employee role—overly broad language may not be legally enforceable.
NDA scope and definition of confidential information
Define types of information requiring protection specific to your business needs and employee role. Include examples: know-how, pricing, security procedures, marketing strategies, design files, proprietary materials. Extend protection to oral communications, not just written documentation.
Broader isn't always better. Courts may refuse to enforce overly expansive definitions that attempt to protect everything.
Enforceability across LatAm jurisdictions
Most NDAs provide a specific term of nondisclosure, typically one to three years. Open-ended NDAs aren't legally enforceable once confidential information becomes public.
NDAs should state that IP ownership (inventions, ideas, patents) developed during employment belongs to the employer. All employees must read, understand, and sign the NDA as an employment condition, with terms remaining in effect after termination.
Integration with EOR employment contracts
NDAs may be embedded in the EOR employment contract or maintained as separate agreements. In an EOR arrangement, the employee owes confidentiality duties to the EOR rather than directly to your company. The EOR may have less interest in preventing employee misuse of your existing IP.
IP ownership must be addressed in both the employment agreement (EOR-worker) and commercial agreement (EOR-client). Review and approve IP provisions in both agreements before signing.
Owned entities vs. aggregator EOR models
Direct ownership advantages for compliance
Only direct entity ownership allows continuous compliance versus the fragmentary aggregator approach. When the legal employer and service provider are the same entity, updates to labor laws happen immediately instead of waiting for subcontractors to react.
Risk-managed EORs employ local legal, tax, and HR experts continuously monitoring regulatory changes. This provides direct accountability and consistent service versus dependence on third-party partner reactions.
Risks of partner network models in LatAm
Reliance on partner networks creates compliance inconsistencies, particularly in Latin America. Communication failures and legal risks increase with aggregator models.
Third-party partners may introduce delays in responding to regulatory changes. Employee detachment becomes a risk when multiple parties are involved, with EOR employees feeling less connected to your company.
Impact on IP protection and data security
Direct entities provide a single point of accountability for data breaches or IP disputes. Partner networks can obscure where employee data is stored and who has access, creating security blind spots.
Sample contract language & template clauses
IP assignment clause framework
Core assignment language: "The Assignor hereby assigns to the Assignee, its successors and assigns, [exclusive/non-exclusive] rights, title, and interest in and to the Intellectual Property." Identify specific IP types being assigned: copyright, patent, trademark, trade secrets.
Include all works of authorship, inventions, designs, and creations developed during the course of employment. Apply to manual, digital, and AI-assisted work ensuring comprehensive coverage.
Scope and limitations: Specify IP categories requiring protection tailored to employee role and business needs. Cover deliverables including code, product designs, documentation, and proprietary processes. State that IP ownership applies during employment and continues after termination.
Note any limitations or carve-outs specific to pre-existing employee IP or open-source contributions to avoid disputes later.
Confidentiality agreement templates
Basic confidentiality provision: "Assignor agrees to keep confidential all non-public information Assignee designates as confidential." Prohibit disclosure to other parties and use for purposes beyond agreement obligations.
Cover proprietary design files, materials, and processes both during and after employment. Define specific term of nondisclosure (typically 1-3 years) or state open-ended for trade secrets that remain confidential indefinitely.
Trade secret protection: Include language explicitly covering trade secrets, client lists, and internal processes. Extend protection to oral communications and written documentation. Specify that ownership of IP developed during employment belongs to the employer.
Note that confidentiality remains enforceable only while information remains non-public. Once information enters the public domain, confidentiality obligations typically end.
Data processing and security provisions
Include GDPR-compliant data processing agreements specifying controller/processor roles. Require breach notification timelines (within 24-72 hours of discovery is industry standard).
Specify data encryption standards, storage locations, and retention periods. Grant audit rights allowing you to verify security controls and compliance at reasonable intervals.
Three-party assignment chain language
The commercial agreement between EOR and client must assign IP from EOR to client. The employment agreement between EOR and worker must assign IP from worker to EOR. Both agreements are required to create a clear transfer chain from worker to your company.
Include explicit statement that IP "flows through" to the ultimate client company. This language eliminates ambiguity about ownership intent.
Cybersecurity risks specific to LatAm hiring
Regional cybersecurity landscape
LatAm has proven vulnerable to cybersecurity attacks due to insufficient legal enforcement of security measures. Data leakage is a major concern, with weak cybersecurity enforcement threatening product core IP.
Argentina, Brazil, Mexico, and Chile are adopting frameworks guaranteeing data protection, but vigilance remains required. Why Argentina is emerging as a top nearshore hub includes its improving data protection standards. Choose cooperation models keeping IP rights in-house and minimizing vendor access to sensitive systems.
Data handling & encryption requirements
Minimum standards include data encryption and masking protecting sensitive information. Multi-factor authentication and role-based access controls prevent unauthorized access.
Verify data encryption methods for data at rest and in transit. Confirm secure data storage systems with robust encryption and access controls safeguarding against breaches.
Incident response and breach protocols
Require a clear, effective incident response plan promptly addressing data breaches or security incidents. Establish breach notification timelines in your contract (industry standard is 24-72 hours).
Define responsibilities for notifying affected employees and regulatory authorities. Verify the provider maintains cyber insurance covering potential breach liability.
Mitigating IP theft risk
Use legally binding contracts covering IP ownership, confidentiality, and NDAs ensuring ideas and data remain secure. Begin with a test phase evaluating team performance before scaling up.
Ask about agency cybersecurity policies and how they prevent data breaches. Secure database security and encryption; choose models where you retain IP rights in-house.
Creating your EOR evaluation scorecard
Security certification checklist
- SOC 2 Type 2 report (review actual report, not just certification claim)
- ISO 27001 certification with recent audit date
- ISO 27018 for cloud-based data handling
- GDPR and relevant LatAm data protection compliance documentation
- Cyber insurance policy details and coverage limits
IP protection assessment criteria
- Written IP management policies reviewed by legal team
- IP assignment clauses in both EOR-employee and EOR-client agreements
- Country-specific IP protection mechanisms for each target LatAm jurisdiction
- Clear three-party assignment chain from worker through EOR to client
- Track record of IP disputes or ownership challenges (request disclosure)
Data security requirements matrix
- Encryption standards for data at rest and in transit (minimum AES-256)
- Multi-factor authentication requirements for all system access
- Role-based access controls with audit trail
- Data residency compliance for LatAm countries and GDPR
- Breach notification timeline commitment in contract
- Regular security audit frequency (quarterly minimum recommended)
Compliance transparency indicators
- Frequency and detail of compliance reporting to clients
- Willingness to provide actual audit reports, not just summaries
- Clear answers to entity ownership versus aggregator questions
- Disclosed history of compliance fines or legal disputes
- Proactive communication about regulatory changes affecting clients
FAQ: EOR security & IP protection
What is SOC 2 compliance and why does it matter for EOR providers?
SOC 2 (System and Organization Controls 2) shows a business has controls keeping sensitive information secure, available, private, and accurate. B2B service providers with access to sensitive company data most commonly seek compliance. A breach at an EOR could allow hackers to compromise client companies or undermine operations.
How does IP ownership work when hiring through an EOR in Latin America?
Without robust IP assignment clauses, the EOR may be the first owner of IP developed by your worker, not your company. Each LatAm country has its own IP laws requiring clear ownership definition from the start. Use NDAs, work-for-hire, and IP assignment agreements ensuring deliverables belong exclusively to your company. This requires IP assignment language in both the EOR-employee contract and EOR-client commercial agreement.
What data protection laws apply when hiring LatAm developers through an EOR?
Brazil's LGPD (2018) is a comprehensive GDPR-modeled law governing personal data privacy. Argentina achieved EU "Adequacy" qualification for data transfers, the first LatAm country with this status. Chile (1999), Argentina (2000), Uruguay, Mexico, Peru, Colombia, Panama, and Barbados have enacted data protection laws. GDPR developments continue heavily influencing LatAm regulatory frameworks.
What questions should I ask an EOR provider about security and IP protection?
What are the main IP protection risks when using an EOR versus direct hire?
Code, designs, and proprietary processes developed by misclassified contractors become legally ambiguous assets. Employment relationships structured correctly provide clearer, more enforceable IP ownership than contractor arrangements. The EOR model reduces risk of contractors walking away with created IP. Direct employees with proper contracts offer stronger IP assignment than independent contractor relationships.
How do confidentiality agreements differ between direct employees and EOR arrangements?
In an EOR arrangement, the employee owes confidentiality duties to the EOR rather than your company. The EOR may have less interest in preventing employee misuse of your existing IP. IP ownership must be addressed in both the employment agreement (EOR-employee) and commercial agreement (EOR-client). Review and approve IP provisions in both agreements.
What certifications should I look for in a LatAm EOR provider?
ISO 27001 (international standard for information security management, independently verified), SOC 2 Type 2 (data security verification with time-based compliance review), ISO 27018 (cloud privacy), GDPR compliance documentation, and relevant LatAm data protection certifications. Country-specific labor and tax compliance certifications for target jurisdictions are also essential.
What are the risks of using an EOR aggregator versus owned-entity model in Latin America?
Partner networks create compliance inconsistencies, particularly in LatAm. Aggregators depend on third-party partners, meaning updates to labor laws are delayed versus immediate with owned entities. Direct ownership provides a single point of accountability for compliance and security. Aggregator models complicate data security verification and audit rights across multiple subcontractors.
Book a demo with Howdy
The right EOR partner transforms compliance complexity into competitive advantage. Howdy operates owned entities across Latin America with SOC 2 Type 2 certification, comprehensive IP assignment frameworks, and GDPR-compliant data handling built into every contract.
Book a demo to review our security certifications, IP protection contract language, and compliance reporting. We'll walk through how our owned-entity model eliminates the aggregator risks that create legal exposure during M&A due diligence.
Ready to build your LatAm engineering team with proper IP protection? Schedule time with our team to discuss your specific security and compliance requirements.