Are Non-Compete Clauses Enforceable Against an Independent Contractor?
An independent contractor is a person contracted to perform services for a company or person as a non-employee. It can be difficult to tell the difference between an independent contractor and an employee, and there are many different factors considered when distinguishing the two. Generally, the status of an independent contractor depends on the level of control over the individual. The more control an employer has over the work, the more likely the person will be considered an employee—whereas an independent contractor has significantly more flexibility when completing a project. Additionally, the specific contract provisions may differ between employees and independent contractors.
In an employment contract, the employer is free to include a non-compete provision for any employees in high level positions. A non-compete clause can be structured in different ways however, it usually prevents an employee from working for a different company or from starting a competing business for a short period time after their employment ends. This is beneficial to a business that has put considerable time and effort into giving this employee specialized training and knowledge.
But can a company use a non-compete clause to prevent an independent contractor from doing similar work for another company?
One concern with having an independent contractor sign a non-compete clause is the possibility the independent contractor could be reclassified as an employee. Even if an individual is labeled as an independent contractor, a non-compete clause may be an important factor that leads to a determination the individual is actually an employee. This could subject the company to penalties, overtime pay, and workers compensation insurance.
Additionally, even if the independent contractor remains classified as an independent contractor, a non-compete clause may be unenforceable. An independent contractor is expected to be an expert in their field and is likely in the business for themselves. This means the independent contractor is usually working for multiple businesses at the same time. One business attempting to enforce a non-compete clause against an independent contractor may impede the independent contractors’ ability to find work.
Most courts in the United States will not enforce a non-compete clause when it places an unreasonable restraint on the independent contractors’ ability to work.
For example, if a home improvement store hired an independent contractor to design their website, the store cannot use a non-compete clause to prevent the independent contractor from designing a website for a different home improvement business.
However, there are many different types of non-compete clauses that a court may still enforce against an independent contractor. For example, a business could include a provision that prohibits the independent contractor from setting up a competing company while completing work for the business that hired them. Additionally, a business can include confidentiality agreements, non-disclosure provisions and non-solicitation clauses. Non-solicitation clauses can prevent an independent contractor from soliciting employees or current and prospective clients. A business lawyer can help you determine what provisions are best for your independent contractor contract.
If you’d like more information on independent contractor agreements and non-compete clauses, feel free to reach out to us at 720-999-5517. We’re happy to help.