A noncompete clause in an employment contract can be an effective way to keep a worker from leaving to work for a competitor for a defined period of time after he or she stops working for you. Sometimes independent contractors have as much, or nearly as much, company-specific knowledge as employees. So the question is whether you should include a noncompete clause in your independent contractor agreement. If you require independent contractors to sign a noncompete and they challenge the agreement, you run the risk of a court reclassifying them as an employee.
The existence of the noncompete clause in and of itself can be a key factor in defining the person as an employee. Such a change can lead to requirements to pay penalties, overtime and workers’ compensation insurance. If the person is still classified as an independent contractor, it’s possible the noncompete clause will be unenforceable. Independent contractors are typically self-employed experts in their field. They typically have multiple clients at any given time. Most courts will find a noncompete unenforceable if the agreement, in effect, bars the person from finding work with other clients. For example, if a shoe store hired an independent contractor to design and develop its marketing materials, the store cannot use a noncompete clause to prevent the designer from creating materials for another shoe store.
On the other hand, some relevant contract clauses may be enforceable against an independent contractor, such as:
• A provision that bars an independent contractor from creating a competing business while working for the original business that hired him or her.
• A confidentiality or nondisclosure provision.