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January 18, 2022

Do not let non-competes kill your business

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Freelancers will often tell you that their lifestyle has its good and bad points, but invariably one of the positive aspects is being able to choose their clients.

Being able to pick who you work with, and to make that client list as varied, wide or narrow as you choose, can be essential not only to keeping work interesting and fresh, but building resilience by having multiple clients and income streams.

 One thing though can potentially curtail those freedoms. They’re called non-compete clauses.

 These agreements are often found in regular employee contracts but are increasingly being used between clients and freelancers too.

Not reading the clause properly and then breaching it, could land the freelancer in contractual and even legal hot water.

What is a non-compete agreement?

They are clauses put into contracts to ensure a freelancer doesn’t do any work for their client’s rivals. From the client’s point of view, this prevents a valuable piece of manpower like a freelancer helping their competition and also potentially sharing information about their internal workings and operations.

From the freelancer’s perspective though, this can lead to them being prevented from applying for work with other companies which their initial client considers a rival. It could potentially also put entire industries of possible new clients beyond their reach, with major ramifications for their income potential.  

So, when considering entering into such an agreement, there are several factors to consider. These are:

What is meant by ‘competitor?’

As with any contractual agreements, terms can be quite sweeping and open to interpretation.

Before singing it is vital that you understand what the client means by a ‘competitor’. Say they’re a flexible office space company, it might be understandable for them to ask you not to work for a direct rival that also deals in flexible office space, but less so if they ask you not to work with any property companies at all.

 Geographical constraints

The scope of the non-compete may focus more on the physical area you work in. You may be required to not do any freelancing for your client’s competitors who are based within a certain radius of them. 

Something to bear in mind though is the potential impact this may have on you if your work means you regularly need to have face-to-face meetings with clients or do work for them on site.

At the more extreme end it could push your travel expenses up considerably as well as leave whole towns or cities, or even countries – potentially out of bounds for you.

Time

A vital point to consider is how long the non-compete lasts. Is it just for the duration of however long you’re working with your client? Or is it for a year or even in perpetuity? It could be argued that no one contract could ever be considered worth signing up to the latter.

“You should check the duration of any non-compete clauses and whether it is reasonable” said Julia Kermode, founder of IWORK – which provides advice and support to independent workers in the UK.

“Don’t forget that as a freelancer, you could find yourself unexpectedly needing more clients, so you shouldn’t restrict potential future work.”

Should you sign one?

As with many things in the world of freelancers, much comes down to weighing pros and cons. How much do you need the work and how much is it likely to pay? Is that worth the tradeoff of having to say no to other – potentially many other – clients in the future? 

Jacquelyn Tolksdorf of Unglitch.io is a design, web and marketing expert who has been freelancing since 2009. She no longer takes on clients who request non-compete agreements that prevent her working with anyone else in their niche.

“I did at the beginning of my career,” she said, “but looking back I lost thousands of dollars’ worth of clients when I was under these agreements, not to mention it weakened my portfolio as often these same clients wanted me to sign additional NDAs, so that I could not showcase any work in my portfolio.”

 But even if certain clauses were included in a contract, a court would take into account whether such clauses were reasonable in the first place, so says Andrew Park, an employment law expert and consultant at London law firm Lawrence Stephens.

“There is a general presumption against clauses which tend to be in restraint of trade.  “Restrictive covenants are in conflict with this principle so will only be enforced if they are fair and reasonable in the circumstances.

“A court would look to see if there is a legitimate business interest which it is appropriate to protect; and if the protection sought no more than was reasonable, having regard to the interests of the parties and the public interest.” 

He adds though that invariably an employer will have deeper pockets than a freelancer and might attempt to intimidate them into compliance through fear of litigation.

He added: “Although covenants entered into by freelancers are more likely to be enforced than those entered into by employees because they are assumed to have more equality of bargaining power, this is unlikely to be true in practice.”

Julia, though, thinks there are better ways for employers to protect their interests, starting with a simple discussion.

She said: “Of course, a freelancer’s clients have every right to protect their business interests, but I think non-compete clauses are not the best way to achieve this. 

“Most freelance professionals would not simultaneously undertake work for competitors because it is so obviously unethical to do so due to the conflict of interests. 

“Expectations should be discussed at the outset and could be covered in the freelancer’s terms with their clients, along with the usual confidentiality provisions.”

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