Imagine that you’re about to finish some contract work for the best known brand in your industry. It was tough to come by so you were thrilled to get the job, and it has really boosted your portfolio.
Just days before the contract is up, a similarly well-known company in the same industry approaches you with an offer of employment. Things are working out well, right?
Do you remember that non-compete clause you signed as part of the contractor agreement? Yes, it has come back with a bite. You were so happy when you received the contract that you didn’t even read it. The result? You cannot take the job that you have been offered or any like it for the next two years.
This scenario might sound farfetched, but it’s something that can and regularly happens to those who do not diligently inspect their contractor agreement. Most contractor agreements contain a non-compete clause, which essentially sets out to what extent you are limited in working for other similar businesses in the immediate future.
What should I look out for?
Before signing one of these agreements, you should weigh how many of your potential future clients you would be excluding by doing so. This will vary from industry to industry. For instance, if you are a consultant working exclusively with renewable energy clients, you will likely have more of a problem than if you are a designer who will be able to get clients from many non-competing businesses.
If it turns out that a large share of likely future clients would be excluded by the non-compete clause, it would be sensible to fight hard to remove it. If, however, the number will be less than 5%, you might be willing to be more lenient. Nevertheless, it’s a good habit to think about which specific competitors might be affected by the agreement, and factor that into your decision as well.
If negotiating it away completely is not possible, make sure that you restrict the scope as much as you can. The scope could be restricted in geography (e.g. only local competitors are out of bounds), industry subsection (e.g. only direct competitors should be restricted), or time (e.g. 3 months as opposed to 2 years). Another approach is to ask your client if they are worried about any specific competitors, and try to have them limit the clause to only those names.
So, should I sign it?
There are very few jobs worth taking that will make you sign your right to future work away. Broadly-drafted non-compete provisions are bad for employers and contractors alike. They inevitably lead to debate, and in a worst case scenario, to costly litigation. So it’s often better to have the debate upfront while you both have an interest to come to a reasonable agreement.
If you are not sure whether or not you can take on a new client in light of non-compete clauses that you agreed to in the past, we would recommend checking with a specialised solicitor.
An experienced solicitor will be able to advise you whether there is a problem or not, which in turn, will give you peace of mind. This is always better than taking the gamble.