How to Handle Non-Compete Clauses
I had the chance to talk with another freelancer the other day: she’s been offered the opportunity to take on a six-month project where she’d essentially be working full-time for a single client. The money is good, but there’s a catch in the contract—a non-compete clause.
Note: A few times a month we revisit some of our reader’s favorite posts from throughout the history of FreelanceSwitch. This article was first published in March of 2010, yet is just as relevant and full of useful information today.
The Standard Non-Compete Clause
The idea behind non-compete clauses grew out of employers wanting to make sure that when an employee left the company, he didn’t take any clients with him. Most clauses are phrased so that the contracted employee can’t work in the same field for a specific period of time after leaving the company. It’s actually quite difficult for an employer to enforce a non-compete clause in a contract. They keep putting them in, though, in the hopes of limiting competition for even a short period of time.
When a Freelancer Sees a Non-Compete Clause
There are only two situations in which the issue of a non-compete clause should come up for a freelancer. The first is if you’re freelancing part-time while still working for an employer. If you have a non-compete clause in your contract, but you’re taking on similar projects as a freelancer that you do during your day job, you can wind up with a problem on your hands. Technically, an employer could terminate an employee who took that route and even sue that employee (although the cost is generally not worthwhile). The second is if you’re in the process of leaving an employer in order to freelance full-time. If there’s a non-compete clause in your contract, you might face some trouble about pursuing similar work to your past employer’s — although you can often work out a deal where they don’t enforce the clause.
You might have noticed that I used the word ‘should’ when saying that there are only two situations where a non-compete clause comes up. That’s because there is a third situation which some freelancers face: when clients bring on freelancers for long-term projects, sometimes they’ll include a non-compete clause in the contract. It shows a pretty fundamental misunderstanding of the fact that a freelancer is an independent contractor, but it is, unfortunately, not unheard of. From what clients have explained to me, the idea seems to be that if a client is sub-contracting work to you, he wants to make sure that you can’t grab clients when you leave.
Responding to a Non-Compete Clause
Don’t count on the fact that such a clause is difficult to enforce. If you see a non-compete clause in a contract for a project you’re being asked to consider, either ask to have the clause removed or don’t sign the contract. A client might say that they have no intention of enforcing the clause, but the fact that it’s in there at all could be a problem down the road.
It is definitely possible to get such a clause removed from a contract. The freelancer I mentioned at the beginning of the post did just that: she explained to her client that signing a contract containing that clause would endanger her ability to earn a living after the project ended. After all, as a freelancer, a strict interpretation of that non-compete clause would mean that she couldn’t take on any project similar to what she’d be working on for those six months after the project ended.
There is another option that you can suggest if a client is truly concerned about the information you’ll have access to while working for him. You can add a clause to the contract stating that you will have access to that information but limiting or preventing your ability to use that information after the project ends. It’s still not an ideal option from the freelancer’s point of view, but if that’s what it takes to land a project, it may be worth it.
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I take it that you are referring to NDA’s?
I wish this post came out last week, LOL. As a freelancer, I was approached with a non-compete for a potential client that made me want to run the other way. I do understand them for employers (I’ve got 3 months left in a 2 year non-compete from my previous employer… )
As for the potential client, I had to turn them down – it was basically saying that I couldn’t work for any of their competitors for a period of 50 years (seemed a bit on the long side to me – I always thought 1-3 years was standard).
Very good to see it in writing from an expert, that it’s not quite the norm as far as regular freelance clients, go. I’m no longer second guessing my decision… As they say – always trust your gut!
Another option on this by the way is to alter your price based on the clients desire for a Non-Compete Clause.
I’ve always explained to clients that I’m more than willing to sign such a clause, but that since it will limit the amount of work that I would be able to accept, there would be an added financial cost to the client to cover this.
So far in my freelance carrier, I’ve only been asked to sign a Non-Compete Clause six times. Four of those times, the client decided that it wasn’t important enough to them to justify paying the extra cost. One time, the client decided to pay the premium in order to have the clause.
The first time I was asked, was the only time I didn’t ask for more in order to sign a clause – and that time I was burnt badly for the next year, but learned my lesson.
Two years ago I began to freelance for local design firms. Most didn’t even bring up the subject but one wanted me to a sign a non-compete clause of 5 years + and to not target similar clients within a 3000 mile radius from their office! It also stated that I had to pay like $250,000 if I breached the contract. It was complete asinine.
Thank God I did not sign it. It upsets me that there are firms that will go that far to screw a freelancer.
Thanks for the article. It confirms my suspicions that non-complete clauses for freelancers are bull.
Hi Ruben,
What do you mean non- compete clauses for freelances are bull?
I recently quit from a job as a contractor and my boss mentioned again a reminder that I will not be able to work anywhere for two years.
Is that bull?
Yes I did sign the contract and I will never sign a contract with a non – compete clause ever again.
Alot of other contractors are in the same boat as I am but are continuing to go ahead with work. I want to make sure I don’t get sued by her if I keep working in that field or if I decide to start up my own business in the next year.
As for noncompetes, I simply won’t sign them — no exceptions. Being an independent contractor by its very definition means you’re free to take on multiple clients. If you specialize, you will obviously be working on similar projects from time to time. If someone doesn’t want me working for a competitor then they’d better be prepared to pay a generous full-time salary, benefits, and deal with all of the other expenses (like their portion of taxes) involved in hiring me as an employee — which I’d still turn down.
On a side note, you have a problem here on the site. Not only are comments awaiting moderation showing up publicly with that label to people other than the poster, but the previous poster’s email address and other information is displaying in the “leave a comment” form, exposing their contact information publicly. Just a heads up that someone needs to look into it — not only is it a privacy concern, but things you don’t want approved (like spam) might also be visible.
And interestingly, after publishing my comment, the previous “awaiting moderation” comment did disappear. Not sure if you guys happened to fix it while I was posting or if it only happens on first visit for some reason.
I never mind signing non-disclosures, but I avoid any client who tries to get me to sign a non-compete. I’m my own business, and I’m not going to let anyone else tell my business who it can or cannot work for
Good article. However, it’s worth noting that if you live in California non-compete clauses are invalid with a few very specific exceptions.
http://en.wikipedia.org/wiki/Non-compete_clause#California
Most employers (and contractors!) are unaware of this, and I’ve been asked to sign these sort of agreements many times before.
I have found by simply challenging this clause I end up not signing anything, leaving me free to do my work. I tell them going in that I have products or services on the side that this goes indirect conflict with. I will have my attorney reword it and since they don’t want to get in to the legal mumbo jumbo them selves the contract gets shelved.
I know in SD, there isn’t really such a thing as a Non-compete unless a employer is willing to cover what you could of made working for others. NDAs on the other hand are used, and I am willing to sign them.
Actually, there is another scenario in which I see non-competes all the time, and where I do think they have their place: on a named account basis. I work with a venture that has an exclusive arrangement with a specific set of clients. This venture uses a dynamic teaming model for project execution, almost always made of up freelancers across different disciplines. Most freelancers do not stick around long-term (of their own accord more than anything else), but in their contract they do have a requirement that they cannot go back to this specific client to solicit competing business.
After having a former freelancer do precisely this — and create a very nasty political problem with the client — this is something the owner of the firm insists upon now. And it’s not an unreasonable expectation. If I bring someone in to collaborate on a project to serve a client, then I don’t think it’s unreasonable for me to insist that the freelancer in question not use my relationship with the client to get close enough to them to undercut me.
Of course, the better solution is to have a more collaborative organizational model and practice, but people are people and if nothing unexpected ever happened then lawyers would be rarer than a dodo bird.
If they ask you to sign Non Compete, you can say, “I agree to the terms, however, I double the rate because I have to sustain myself during the Non Compete period”.
My writing specialty is industry trends, so I do a fair amount of work for industry publications. I have one client who gives me data her firm collects and asks me to trend it and write about it. The contract has a non-compete clause specifying that I can’t write for another niche publication covering that industry for six months, and I don’t mind that at all.
I sign contracts with non-disclosure agreements too – but those are very different. They generally pertain to the client’s confidential and/or business information.
What I won’t sign is a contract that says I can’t disclose or use any information I learn on the assignment to produce copy/photos for another publisher. I’ve turned down lucrative opportunities because of such clauses – and will do so again.
Best way to handle non-compete clauses? Live in Wisconsin and work with Wisconsin-based clients – non-competes are nearly unenforceable here.
Just stumbled across your blog. Happy to find you. Just wanted to note that in the State of Colorado non-compete clauses are often enforceable. Wish I had had your post and comments 5 years ago when I was contracting while building my own business. The two year non-compete clause was merciless and I was naive enough to sign it.
With your post I am better now better prepared to handle the possibility of non-compete clauses. Thanks so much!
Tamara G. Suttle, M.Ed., LPC
http://www.AllThingsPrivatePractice.com
http://www.TamaraSuttle.com
If they ask you to sign Non Compete, you can say, “I agree to the terms, however, I double the rate because I have to sustain myself during the Non Compete period”.
what if there is a non-compete clause in my previous contract and the contract that i have is only for a probationary contract for 6 months the company did not gave me a regularization contract because i work for them for 2 years then there is no increase to my salary and in the probi contract no specification for legal case its just that a non-disclosure agreement for non-compete, so i transfer to competitor because they give me the rate that i wanted, can you help me to comply to their letter that informing me for being aware about the contract that i signed to them?
I found your blog post when searching for information about non-compete clauses. Your post was very clear and articulate and I was able to negotiate the non-compete clause out of contract with relative ease. Thank you for the information.
This is so interesting. I had no idea. Thanks for sharing this important info!
non-competes generally illegal in Europe where competition (working for another employer) is the basis for the clause. Those of you Stateside start lobbying you Congressman! Alternatively get a financial compensation clause added for the duration of the non-compete and see how quickly the company drop the issue.
I got this job offer that has a period of 99 years. I need a job but this particular position revolves around all of my past employment experience. Not only that but in this non compete agreement; it also states that I can not sell, license, provide any of the same or similar products or services. What the F; 99 years?!
What should I do?
Nick, I don’t know where you are located and I’m not an attorney but I’m betting that if you are going to go with a non-compete clause, yours may be the best kind to go with. I doubt 99 years is enforceable.
I suggest you get a quick consult with an attorney to make sure but if it’s no enforceable, I don’t know why it would be a problem.
We were looking to make a client sign one that prohibits him from hiring another SEO company while in contract with us. We seem to have issues with clients talking with other SEO companies..
You want your CLIENTS to sign a non-compete to prevent them from talking to other SEO companies???? That is absolutely ridiculous. The best way to stop a client from going to someone else is to provide a value to them. Maybe that’s the reason that they are talking to other SEO companies (besides the fact that SEO companies are all smoke and mirrors anyways).
I am an Independent Contractor that gave a 30 day notice to a very small company that has 3-5 Independent Contractors work for this gal.
I was told months ago that if I ever decided to leave her company I would need to give a 30 day notice so she could find a replacement. I gave my 30 day notice thinking I would be able to finish my work and get paid through this month. That was not the case. She said I would not get paid for the entire month and I wanted to know if that was right on her part?
She had me forward all my client files to her in order for her to accept my 30 day notice. I do newsletter design and I did design 4 newsletters that I am waiting to see if she even pays me for them.She has not replied to doing that for me either.
I was also told I am under a non compete and I cannot solicit or do this kind of work for the next year.
I have asked her to send me a copy of my last signed contract and I have not received it or heard from her. Dont you think if she had one she would of sent it right away.
Its been 3 days….I just want to know that if she doesnt have one to show me am I free to retain some of my clients or could she take legal action.
If she does have a contract and fails to give it to me and ignore my requests is there anything I could do?
She also fails to send me my last 6 months of paycheck rcpts.
She continues to call and email my clients and tell them that I am under a non compete and it would be a breach of contract if I worked with them….I think she is doing this to keep my clients with her company and she doesnt realize they do not like the way she operates.
I hope you can help…I will feel alot better knowing that if she does not have a signed contract then I have nothing to worry about and can go onward!!
Thank you!!!
Michelle, I’m sure that there is lots of experienced folks reading here that have opinions. However, you need legal advice . . . from an attorney. Do yourself a favor and spend a few bucks for a 30 minute consult with an attorney in your own state. That way, you’ll know exactly what you can and can’t do and won’t have to wonder which of our answers is the “best one.”
Best wishes on your journey!
my son in law works for a small chiropractic business where we live as an exercise psyiologist….he has been here for three years…they now want him to sign a non compete clause where he can’t work for another chiro for 2 years if he quits….does he have any options?
Hello,
I work for a small company of 12 people and recently was forced to switch over to subcontractors. We have been subs for a month and a half now and now the owner is forcing us to sign a non compete. I haven’t yet seen the form yet, but if I have already collected a few checks, can he make me sign this?
Well, if you look at the freelancing service as a product, it makes the non-compete even more ridiculous. Such as within a company you’ll usually develop a product for an entire market, selling the same/or similar product to multiple customers with similar needs.
This type of approach could be treated as a custom design, as you’re doing new work with a new client, so in that aspect they could be paying more for it, such as more time, solving unknown problems, that they don’t necessarily want their competition to so quickly benefit from. If that’s really the case, then your value should increase, more pay for longer exclusivity.
Of course, you could just realize if they’re asking for it that they really don’t know what they’re doing and just ignore it, let them try to enforce it if they really think it’s worth their time. Not to mention destroying the relationship with you in the process, which they obviously value by bringing up the non-compete in the first place and really wouldn’t want to ruin long-term.
After all, you’re the one that’s bringing quality to them, they don’t have it, you do. That dynamic is probably only going to broaden over time.
I refuse to sign non compete clauses (disallowing doing any similar work in the field) but I will sign non-disclosure agreements (where you don’t disclose proprietary info) and non solicitation clauses (where you agree not to approach their specific clients after the job is over).
I’ve always believed that if someone wants me to sign a non-compete clause they have to compensate me in full, including inflation, and other adjustments over the time period stated after the job is complete or when I quit or even get fired (in this case on top of compensation).
I’ve used that argument once in my career – and my employer never brought the subject up again in the six years I worked for them.
It’s a ludicrous clause – and I’ve seen it being misused by a lot of inexperienced business folk.
I had just heard the word ‘Non-Compete’ and it always remains debatable issue. During reading, i came to know that such thing is worth to boycott.
As both a freelancer and web business owner I’ve been asked to sign a NDA six or more times and having only required a developer to sign a NDA once and the terms were only for a year.
Personally a lot of clients think they have the next big thing or want to seem more important by request an NDA to be signed. I have still yet to come across an idea or job that has really warranted having a NDA.
I have a cleaning business .. I had a small project and I hire a guy to work for me for 10 days . Next my husband left me and now he and the guy open a cleaning business and they went to my customers saying that I move back home and they took a big project I was waiting on . Is there anything I can do?
I recentyl sold my printing company. in the contract it stated that i could not compete directly or indirectly. i worked for the company i sold for a full year, i have a job offer pending that im scared to except in the same industry. since i signed the contract does this mean that i cannot work for anyone else in the same indstry or just not able to own my own company in competition
as an employer of free lance app developers, how is one supposed to make sure your developer doesnt go out and make his own version of your app?