Non-compete clauses are often part of regular employee contracts but are finding increasing use in freelancer contracts. Not looking at a non-compete properly could lead to quite a bit of trouble.
Ignoring a non compete agreement could mean anything from delayed payments to not getting paid at all or having to refuse future projects that clash with the agreement.
Especially for freelancers who work in a certain niche, such agreements can put a serious dent in your business plans.
To avoid that, we summarized some of the most important facts about non-compete clauses.
First, we’re going to look at what they actually are, then cover their most important details and last but not least, try to answer the toughest question there: should you sign them or should you turn down the offer?
What is a non-compete clause?
A non-compete clause (NCC) or covenant not to compete (CNC) is generally put in place to ensure that the employee or the contractor doesn’t try to compete with the client. That covers all kinds of “conflicting activities”. But basically, a non-compete is there to ensure that you won’t be working with the enemy.
Companies don’t want people that are working for them also helping the competition – there is a potential conflict of interest there.
So it’s obvious that these kinds of clauses have some merit. They’re not necessarily written to mess with freelancers. But they can get too restrictive. And that’s where you should pay attention.
If the clause is written in a way that will prevent you from doing a bunch of projects, it’s probably not worth it.
Here’s an example of a freelance non-compete agreement:
The most important details about a non-compete agreement
1. Geographical scope
Does the contract prevent you from working with local competitors only? That is probably one of the more reasonable things that a client can ask for. On the other hand, if they expect you to not work with any company they see as competition, watch out. You will very rarely be able to afford not to work with anyone in your entire country or even beyond that because of a non-compete. That is just too much.
2. Who qualifies as a competitor?
So who’s actually part of the competition? The answer to that question is often part of the non-compete clause and is one that can determine whether you should be signing it or not. Let’s say you’re designing a website for a company that sells candles. If they ask you to not work with any other candle-sellers, that’s alright. But asking you to refuse contracts from anyone who produces a light source is taking it too far. It’s a fine line between actual competition and the whole field of work – make sure your non-compete doesn’t cross it.
Thirdly, non-compete clauses are usually put in place for a certain period of time. The lightest version here would be not taking on work with the competition for the duration of the contract. That’s a reasonable request.
However, some companies might think otherwise. Non-competes for up to one year are not rare. But that doesn’t mean you have to sign them. If they’re even longer than a year, that’s a definite red flag waving in front of that freelancing contract.
So, should you sign a non-compete clause as a freelancer?
As we’ve seen, non-compete clauses can make sense and there are definitely some reasonable ones out there. Before signing, the single most important thing to determine is how much of your future freelance business will be affected.
If you’re looking at anything less than ten percent, it might be worth thinking about. But as soon as a non-compete clause affects more than that, keep your fingers off it. More often than not, it just won’t be worth it in the long run. You cannot predict what future contracts might come your way – you might be missing out on some big fish.
The second question you should answer before signing is whether the clause is too broad. Some companies will draft contracts with broad non-compete clauses just because most freelancers won’t argue about them – especially if they’re new to the business. But if the scope is too wide, be it in matters of location, time, or definition of competition; try to negotiate yourself out of it.
Tip: You can suggest the client signing a nondisclosure agreement instead. It prevents you from revealing confidential information about them but allows you to work with competitors.
To sum it up, it all depends on how the non-compete clause is actually written. As a general thumb of rule, always try to keep the demands to a minimum. But don’t outright decline working with such clauses. If (and that’s often a big if) the requests are reasonable and don’t affect a big part of your business, feel free to go for it.
What has your experience with non-compete clauses been? Share your story with our freelancer community by posting a comment below this article!