Contractors: How to Handle Non-Compete Clauses

Our friends at Lexoo have put together a great piece on non-compete clauses and how best to deal with them. Read on below.

Imagine 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 with the boost it provided for your CV. Just days before the contract is up, a similarly well-known company in the same industry approaches you with an offer of employment. You’d be forgiven for thinking that everything was working out well, but unfortunately that’s not the case.

Remember that non-compete clause you signed as part of the contractor agreement?  Well, it’s come back with a bite. You were so happy to get the contract that you didn’t even read it.  The result? You can’t take the job you’ve been offered, or any like it for the next two years.

This scenario might sound farfetched, but it’s something that can and quite regularly does happen to those not diligently inspecting 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 up 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 and are 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 was 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 too.

If it’s not possible to negotiate it away completely, make sure you restrict the scope as much as possible. The scope could be restricted both in geography (e.g. only local competitors are out of bounds), industry subsection (e.g. only direct competitors should be restricted), and 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 limiting 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 up front, while you both have an interest to come to a reasonable agreement.

If you aren’t sure whether you can take on a new client in light of non-compete clauses 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, giving you peace of mind. This is always better than taking the gamble. To give an indication of costs; solicitors on the Lexoo.co.uk platform often quote around £250 for that type of advice. A small price to pay for making sure you are not exposed.