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Business & Finance

How to Handle Non-Compete Clauses

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I had the chance to talk with another freelancer the other day: she's been offered the opportunity to take on a six-month project where she'd essentially be working full-time for a single client. The money is good, but there's a catch in the contract—a non-compete clause.

Note: A few times a month we revisit some of our reader’s favorite posts from throughout the history of FreelanceSwitch. This article was first published in March of 2010, yet is just as relevant and full of useful information today.

The Standard Non-Compete Clause

The idea behind non-compete clauses grew out of employers wanting to make sure that when an employee left the company, he didn't take any clients with him. Most clauses are phrased so that the contracted employee can't work in the same field for a specific period of time after leaving the company. It's actually quite difficult for an employer to enforce a non-compete clause in a contract. They keep putting them in, though, in the hopes of limiting competition for even a short period of time.

When a Freelancer Sees a Non-Compete Clause

There are only two situations in which the issue of a non-compete clause should come up for a freelancer. The first is if you're freelancing part-time while still working for an employer. If you have a non-compete clause in your contract, but you're taking on similar projects as a freelancer that you do during your day job, you can wind up with a problem on your hands. Technically, an employer could terminate an employee who took that route and even sue that employee (although the cost is generally not worthwhile). The second is if you're in the process of leaving an employer in order to freelance full-time. If there's a non-compete clause in your contract, you might face some trouble about pursuing similar work to your past employer's — although you can often work out a deal where they don't enforce the clause.

You might have noticed that I used the word 'should' when saying that there are only two situations where a non-compete clause comes up. That's because there is a third situation which some freelancers face: when clients bring on freelancers for long-term projects, sometimes they'll include a non-compete clause in the contract. It shows a pretty fundamental misunderstanding of the fact that a freelancer is an independent contractor, but it is, unfortunately, not unheard of. From what clients have explained to me, the idea seems to be that if a client is sub-contracting work to you, he wants to make sure that you can't grab clients when you leave.

Responding to a Non-Compete Clause

Don't count on the fact that such a clause is difficult to enforce. If you see a non-compete clause in a contract for a project you're being asked to consider, either ask to have the clause removed or don't sign the contract. A client might say that they have no intention of enforcing the clause, but the fact that it's in there at all could be a problem down the road.

It is definitely possible to get such a clause removed from a contract. The freelancer I mentioned at the beginning of the post did just that: she explained to her client that signing a contract containing that clause would endanger her ability to earn a living after the project ended. After all, as a freelancer, a strict interpretation of that non-compete clause would mean that she couldn't take on any project similar to what she'd be working on for those six months after the project ended.

There is another option that you can suggest if a client is truly concerned about the information you'll have access to while working for him. You can add a clause to the contract stating that you will have access to that information but limiting or preventing your ability to use that information after the project ends. It's still not an ideal option from the freelancer's point of view, but if that's what it takes to land a project, it may be worth it.

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