Independent Contractors and Noncompete Clauses
It’s simple. Noncompete clauses in employment contracts have nothing to do with your freedom to work or travel and everything to do with protecting your business. Noncompete clauses don’t just help keep workers from jumping to a direct competitor—they also can help protect your trade secrets and customers. While noncompete clauses can be helpful, using them carefully is essential. An overly restrictive contract might end up backfiring on you.
Some noncompete clauses are written so broadly that they include anyone who might have even the slightest amount of company-specific knowledge, which can be problematic… Especially for those working as Contractors beneath you.
Independent Contractor Conundrum
Evaluating whether a noncompete clause is necessary when hiring an independent contractor is essential. Using independent contractors to perform specific technical services doesn’t necessarily mean the information they collect is proprietary.
It can help avoid employee complications and limit your company’s competition. Both you and your contractors have valuable, proprietary information for which you could be liable if the independent contractor tried to use that information at a future job. This clause helps protect your business by ensuring the employee-independent contractor relationship is limited in scope.
The law is not kind to non-compete agreements in general, but especially to those that cover independent contractors. If you ask independent contractors to sign one and they complain, you may have to face the consequences. One of the most common results is? By having your independent contractors sign a non-compete agreement, the court might have them determined to be employees.
Such a ruling can lead to requirements to pay penalties, overtime, and workers’ compensation insurance. The noncompete clause may be unenforceable if the worker is still considered an independent contractor.
To avoid lawsuits, it is crucial that you understand the laws and how to apply them.
How to Ensure Your Noncompete Clause is Enforceable
In the business world, independent contractors can be self-employed individuals who work as experts in their fields. They typically have multiple clients at any given time. Most courts will find a non-compete unenforceable if the agreement is overly restrictive or if you attempt to block someone from working for other clients in the field.
Though, some clauses in a contract may be enforceable against independent contractors. You could realistically employ a provision that prevents an independent contractor from setting up a rival company while working for you as their client. Or, you could potentially create a clause that prohibits an independent contractor from soliciting clients, prospective clients, or your current employees. This also could include any employees laid off or terminated during the contractor’s assignment with your business.
When it comes to creating independent contractor agreements for your business, more often than not, people tend to cut corners. You must not fall victim to this, and don’t skirt the issue by asking an independent contractor to sign a homemade contract or IOU. When scouting independent contractors for your business, consulting an experienced business lawyer is essential.