Being a contractor offers freedom and flexibility. But this freedom can be challenged by the fine print in contracts, especially when it comes to non-compete agreements. These clauses can create a lot of questions, especially around whether they are enforceable.
A non-compete agreement is a clause that restricts someone from working with a competitor. Also, it restricts this person from starting a competing business within a certain time frame and geographic area after their working relationship ends. Non-compete agreements are commonly used in employee contracts. But companies have also included them in contracts with freelancers, consultants, and other independent workers. These agreements protect the company’s business interests including its client lists, trade secrets, and specialized training. But the rules can be confusing for non-workers.
Employees vs. Independent Contractors
Employees and independent contractors are treated differently under the law. Employees usually have more protection under labor laws and employers typically have more control over their work. This control is part of what makes non-compete agreements more enforceable in traditional employment scenarios. Independent contractors, on the other hand, are self-directed, which makes broad restrictions harder to justify. So, a company might still ask you to sign a non-compete agreement if you are an independent contractor. However, whether it holds up in court depends on a few things.
What Makes a Non-Compete Agreement Enforceable?
Courts do not automatically enforce non-compete agreements. They look at the following:
- Reasonable in scope: A non-compete agreement can prevent you from working in your entire industry.
- Limited in duration and geography: A one-year ban within a 10-mile radius might fly. A five-year worldwide ban probably won’t.
- Necessary to protect legitimate business interests: The agreement should be able to help a company prevent unfair competition.
- Not harmful to the public interest: The agreement should not seriously limit your ability to make a living or keep certain services out of a market.
Courts are usually more skeptical about enforcing non-compete agreements on independent contractors. This is because contractors should have more control over when, how, and for whom they work.
State Laws Vary
Some states ban non-compete agreements for both employees and contractors. Others allow them under specific conditions.
Some states are tightening up their rules, especially in industries where non-competes are seen as limiting fair competition or hurting workers’ mobility. Also, some courts are more contractor-friendly than others. This is the reason you should check the laws in your specific state or talk to a legal expert.
What Should You Do If You Are Asked to Sign One?
Read the agreement carefully. Look for red flags such as vague wording, excessive time limits, or restrictions that seem too broad. Ask yourself if the agreement would genuinely prevent you from taking on future gigs in your field.
You can push back if something does not seem right. Sometimes companies include standard non-compete language without thinking about whether it is appropriate for a contractor. You can try negotiating the terms or suggesting that the clause be removed altogether. Also, get legal advice before signing anything.
