Insider tips: How to deal with non-compete clauses
(Spoiler alert: avoid signing contracts that have them)
Hi Friend,
Eons ago, before Facebook was a thing, I was a fledgling freelancer, a baby bird making her way in the writing world. And as a new freelancer, every potential client seemed like the most important client in the world. Every project was crucial to building my business and paying my rent. So I signed whatever contracts clients sent me without really paying attention, hoping that every contract would lead to more (and higher-paying work).
For their part, most clients sent fairly benign agreements (when they sent agreements at all). I’m sure many of them had no idea what their contracts even said. But some did have one dreadful clause hidden among all the legalese. It was the Voldemort of freelance agreements, the great white shark attacking humans off the coast of Long Island: a non-compete clause.
What is a non-compete clause?
Non-compete clauses prevent you from working with or for your client’s competition for a set period (usually somewhere between 2 and 5 years from when you’re done working for this particular client).
Here’s a typical non-compete clause:
The Freelancer agrees that, during the term of this Agreement and for a period of [specified duration] following the termination or conclusion of this Agreement, the Freelancer will not, directly or indirectly, engage in any business activities or perform any services, whether as an employee, consultant, contractor, or in any other capacity, for any business or organization that is in direct competition with the Client.
And while it might sound harmless, it can do you, the sweet, gentle freelancer, a ton of harm.
First, let’s look at the structure of this clause.
Non-compete clauses can be written in various ways, but they all amount to the same thing: You, the contractor, cannot do work for anyone the client views as a competitor.
Some clients will be kind and define things like the geographic scope (“competitors in the US”) or what their competition is (“online marketing agencies that help technology companies”).
But most of the time, they don’t. Which means the geographic scope and the definition of competition will be broadly interpreted by the client. And that almost always means they will define it in the most favourable terms for them, which is usually the least favourable terms for you.
This is crucial, because who you—the contractor—define as their competition might not line up with their definition of competition. (See below for an example of exactly this situation and learn from my mistakes.)
Additionally, the “or in any other capacity” is open to broad interpretation as well. That suggests you can’t work for the new client even under circumstances that are completely unrelated to your work for the original organization.
Here’s a real-life example. Consider me your cautionary tale.
I initially worked for an online company from the U.S. that marketed itself to lawyers and law firms. They had a non-compete clause in their contract.
In my opinion, their contract prevented me from working with other online marketing agencies in the U.S. that marketed to lawyers and law firms. But when I tried to work for an agency in Canada that helped Canadian lawyers (which is where I live), they told me I couldn’t because there was a chance they would want to work with Canadian lawyers, so I would be working with their competition.
They also told me I couldn’t work with individual lawyers or law firms because that would make me their competition. In their opinion, I might steal lawyers and law firms away from them, in a country they weren’t currently operating in.
That’s how they benefit from using vague terms in their contract: They can twist the terms to mean anything that furthers their cause, even if it hurts me by preventing me from taking on clients in their industry.
Worse, that clause was written in such a way that it was to be enforced even if the contract was terminated due to a breach by either party. So if they breached their contract with me, in their view I was still to be held to the non-compete clause.
Their non-compete lasted for one year.
That might not seem long, but when you’re trying to build expertise and establish authority in an industry, one year is a lifetime.
Are non-compete clauses enforceable?
In a lot of jurisdictions, non-compete clauses are largely unenforceable, especially for freelancers.
Remember, you’re not an employee, so you shouldn’t be treated like one. As a contractor, you have the right to develop expertise and set your working terms.
This is because they artificially prevent us from carrying out business in our chosen industry. They make it harder for us to develop our expertise. They can also form the foundation of a monopoly. Think about it: if everyone who works for company X can’t go to work for companies Y and Z, companies Y and Z might run out of potential employees.
Even if clients have no intention of following up on the clause (and that’s a big if), freelancers will often limit their marketing so they don’t accidentally violate that clause. Because what freelancer wants to run the risk of a lawsuit from a former client?
Freelancers don’t want to take the chance they violate an enforceable non-compete clause and wind up owing a lot of money, so they stick to the terms of their non-compete, even if it’s largely unenforceable.
For the vast majority of freelancers, non-compete clauses are at best unnecessary and at worst unethical.
Clients will give all sorts of rationalizations for these clauses. They’ll argue you might have access to trade secrets they don’t want shared; you might steal their clients from them; you might use information you find while working for them to start your own business. In my case, the client argued that the non-compete was vital to ensure the company remained competitive. (Insert eye roll emoji here.)
All of these issues can be sorted with other clauses that don’t limit your ability to find clients and earn a living.
For more of my thoughts on boundaries, read “Having boundaries doesn’t make you difficult to work with.”
Here’s how you deal with non-compete clauses
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