What Can You Do To Defend Yourself Against Non-Compete Agreements?

May 4th, 2016

NonCompeteAgreementsBilly posed the following problem:

I work as a subcontractor but I’m asl working towards building my own business. This presents the problem that I’ve been trying to solve for a while. For example, as a subcontractor to one photography studio, my invoices are “[My Name] Photography” but I secretly have a separate trading name for my own business aspirations of which I’m trying to get client agencies of my own.

It makes my life really difficult because I have to keep my work a secret from my employer who I subcontract with which I’ve signed a non-compete agreement. I wish I could just operate without any secrets. I have my doubts about whether the non-compete agreement is legal.

I’d appreciate any suggestions on how to handle this situation. This situation is stressful!

I’ve talked to many others over the years that have this same issue. How do you transition into running your own business when your contract employer insists on signing a non-compete agreement.

My advice to someone in this situation would be to take a shot at being totally honest with your contract employer. Discuss with them the fact that you appreciate their business needs of not having their contractors steal their customers or investing in your training and having you leave. At the same time present your needs of needing to build a business that will support you. Try to negotiate an agreement that works for both of you.

Here here are some facts that bear on this issue:

  1. Laws that regulate non-compete agreements vary widely country to country and state to state. In the US non-compete agreements are regulated by State laws so you have to research the situation in your own state. In California non-compete agreements are illegal and unenforceable except in very limited situations. Other states have laws that make non-compete agreements easier to enforce. It would probably be worthwhile to get some local legal advice.
  2. In most locations, a non-compete agreement only applies to  an employee, not to an independent contractor. If you really are an independent contractor non-compete agreements may not apply to you.
  3. Courts generally insist that non-compete agreements be reasonable to be enforceable.

Has anyone out there had direct experience with non-compete agreements?

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21 Responses to “What Can You Do To Defend Yourself Against Non-Compete Agreements?”

  • Are no-compete agreements binding in Australia?

  • Billy,
    I would suggest that sub-contracting for somebody where you have signed a non-compete contract and competing with them is a bad idea. A judge may decide that you aren’t acting in good faith and may side with your client if the matter goes to court. What are the terms of the agreement? Is it for a period of time? Is it a no-poaching agreement? Larry’s comments are right on. You need to get legal advice from an attorney that practices in your country or state. You may be able to find free or cheap help in your local area. Some US states’ jobs bureaus may have information on their website or via a help line. Internet legal help sites aren’t a good idea as you can’t be assured that the advice is coming from an attorney that has a practice in your state.

    It’s always best to avoid non-compete contracts or clauses in contracts. When you have one presented to you, put a line though it and initial. If you were to take a regular job with a company, it wouldn’t be as presumptuous for them to insist on one while you are employed by them, but as an independent contractor, such a contractual clause may cause the IRS to classify you as an employee regardless of what the employer wants. Independent contractors must operate independently.

    Go ahead and work on setting up your own business, but you probably should stop working for this other company before going “live.”

  • I’m going to present this in a different light. Instead, look at it this way. How would you feel if you were to hire an inexperienced assistant, spent time and money training him. Introduced him to your client base. Then after a year or so you find that he was using that time to steal you clients and planning to take that training and leave??

    If you outgrow your position with a company, that is one thing. But you should never use your position with your employer to steal their customers. That is just immoral and dishonest. In most cases, the stealing of customers is what is addressed in the non-compete contract.

  • You think this is a difficult situation? Just think how difficult it is for the people that hired you in good faith that you would be honorable and honest with them? Whether or not you can get some shyster lawyer to nullify the contract you willing signed is nowhere near as relevant as the morality of accepting pay checks while you were pursuing other interests. Try this. Go to your employer and confess. Tell him you’re willing to give back all the money he ever paid you, all the workman’s comp he paid in your behalf, reimburse him for any other costs, and also give him whatever compensation he deems appropriate for all the training he provided. Tell him you’re quitting, but will honor the non-compete by never going after any of his customers. Apologize for any inconvenience to him, and then go pursue your own business.

  • I take a very pro worker stance on issues like this, the main reason being that people literally need to take jobs for survival. The argument that you should not take a job if the terms don’t agree with you is a tough one to swallow since as we all know, people need to take jobs. There is just simply no choice. I think workers get the short end of the stick everywhere, for example I don’t understand how in the world all employees don’t get paid lunch. I mean you’re there for them, you can’t be anywhere or do anhing else. How can that time not be considered work? Anyway, I try not to get political in pfre discussions but I think Larry offers great advice. Be upfront with them, but see to your own needs first. It’s easy to see both sides in this case, just be fair with them, obviously don’t go out of your way to steal clients and I think it should all be fine.

  • @Adam- There is no general, simple answer. For a general primer see: http://www.tradesecretslaw.com/2014/03/articles/trade-secrets/protecting-your-australian-business-interests-post-employment/

    The answer would depend on the particular agreement and probably which state in AU it is being used in.

  • As a person who has signed many non-compete agreements for our business with others and created non compete agreements for contract work between others and our business, I think they can be a good idea. But, I think the best and most enforceable non-compete agreements are ones that clearly spell out the terms as to which real estate agents are covered and for what period of time. – this is to say that Real Estate Agent Jenny Smith is my client and I am subcontracting you do work for this specific job. As, such, you may not contact her directly or do work for her directly for a period of x months/years/timeframe. All business transactions and contracts and agreements with Jenny Smith will be between my company and Jenny Smith. You will remain completely transparent to our client and will represent yourself as an associate of our company. If Jenny Smith wants to do business with you – you will refer her back to my company and notify me immediately. We also put our contract workers under our liability insurance policy as well. These are not the exact words – we have a legal contract we use, it basically covers most of what is necessary. I find that most people we subcontract are willing to sign this type of agreement because they like earning the monies we pay them and it covers a very specific agent for a very specific time frame. In addition, we do a lot of contract work for commercial photographers with regards to our 360 and video and as such sign non-compete, transparency contracts.

  • Are you an employee or an independent contractor? Just about any employment relationship will involve employee training and development. That’s part of the deal when a company hires someone—because they have more control over the way you carry out your daily work, they train you in the style and procedures of their business. If the employment is “at will,” which most are, either you or the employer can terminate the relationship at any time, with or without cause. If you go into work tomorrow and they say, “We don’t need your services anymore,” how could you be expected not to seek work elsewhere in the same field? They train you for both on-boarding and advancement purposes, knowing that it is not only possible, but likely, that your skills and aspirations will at some point outpace the path to advancement that they can offer. To me, the ethics of the situation depend on whether or not sales and obtaining new clients for the same kind of work is part of your employment job. If it is, you absolutely have a conflict of interest when attempting to obtain new clients under your own business. If, however, you are merely expected to photograph without sales skills, or your employer does not offer the type of services sought by the clients you pursue on your own, I see nothing ethically wrong with moonlighting even in the presence of a non-compete, so long as you don’t encroach on any existing client relationship with your employer and you are using your own equipment to perform the outside work. [Disclaimer – I’m not a lawyer. Just because I don’t see anything wrong with it doesn’t make it not a potential problem.]

    If you’ve been hired as an independent contractor, in theory you should be bringing your own skills, and often your own equipment, to the table. Further, your compensation would likely be paid based on “billable hours” paid by invoice. Most businesses have more than one client, so if you’re an independent contractor, the company you work for should in theory just be one of potentially many clients of yours. You might look into the IRS standard for classifying a worker as an employee vs. independent contractor. Many companies simply don’t want the hassle or expense of paying someone as an employee, and they see independent contractor status as a way to relieve them of the complications and liability of those pesky labor laws we hear so much about. If the company has hired you as an IC but carries out the relationship as if you are an employee, then frankly, you’re getting screwed out of expenses they should be paying (not the least of which are their portion of income taxes for your compensation). If the company truly treats you as an independent contractor, I would think the only enforceable portion of a non-compete would basically be, don’t mess with their clients and client information, now or in the future.

  • @Brandon – Yes, I believe you are right. The link in #2 in the post (http://nortonlawcorp.com/independent-contractors-non-competes-never-mix/) is from a legal site and claims that if you are not an “employee” non-compete’s don’t even apply. That may need some local legal interpretation.

  • Maybe it is just me, although some of the other posts indicate not, but I come from a generation where a handshake meant something. A man’s word was good enough and when an agreement was reached, it was something to honor.

    If Billy does not see that his actions are un-ethical, then he has bigger problems than trying to start a business. Maybe take a class in ethics 101. The fact that he has stress should indicate that he is mishandling this situation.

    Billy, have a meeting with your employer and come clean. Then work out an agreement with that you both can live with. If not, walk away and learn all the tips and tricks on your own….

    Helping someone with unethical behavior, to try and circumvent their word is…well… unethical as well

  • I’ve noticed a lot of you are using phrases like “come clean” and “confess” as though I’m doing something shady. There’s no shadiness to it at all. It’s simply omitting the subject in conversation. Just as they don’t mention a lot of the inner workings of their business, I don’t mention mine. I’m hired to take photos for them and thats what I do.

    While I thank you for your input, Gary and Jerry in particular have gone to the extreme. There is no need to apologise for anything, nor do I owe these people anything at all. Especially not to give them back their money. That’s completely ridiculous. I had a client prior to working with them and haven’t made any attempts to take their clients or even do anything that would do them harm. If anything I’ve represented them well where clients have spoken well of me as a representative of their business, which makes the company look good.

    Jerry’s and Gary’s responses make me think that they’re making assumptions from little information and leaning toward the negative as a go-to solution. There’s nothing unethical about it at all. It’s simple really: I’m a photographer with my own business. I started working for them while I had my own business. I have a separate trading name for work I get outside of their business. I market my business for work I get of my own accord. Not by stealing their clients, but by working to get the clients and doing a job for them. No one has a right to control the whole industry and stop people from going after clients who they don’t work for. They don’t own me. If a potential cline comes up to me, who has no link to anyone, and asks me to do a job — from Gary and Jerry’s perspective I have to tell the business I subcontract to and ask their permission if I can do work for them. That’s ridiculous.

    And the director has even mentioned that he is ok with people working on the side and the non-compete agreement is more for their own protection because people have screwed them over in the past. They’ve treated me extremely well and I’d never do anything to harm their reputation or take their clients away from them. And that’s where I see these agreements being binding, when someone goes out of his way to poach their clients. But if someone finds his own clients, I see nothing wrong with that, as there is plenty to go around, and no one deserves to monopoly the industry. It should be fair game.

  • I’m a photographer who works for whoever pays me. I could work for some other businesses but just work for the business I’ve mentioned here as well as my own business. Technically though my own business is the same as the one I use to subcontract with the business I work for. The only problem is that I signed the non-compete agreement. Why did I do it? Because I feared they wouldn’t give me work. But if the agreement is legal, technically they could give me one job a day and tell me they have no more jobs to give me and prevent me from making a living and force me out of the industry altogether because I wouldn’t be allowed to work for anyone else. I’d be forced to take up an unskilled job just to buy food. It wouldn’t make sense.

    It’s like working at McDonald’s not as an employee but as an individual contractor with your own business, signing an agreement saying you won’t work in the industry, but having skills at home to make really, really nice burgers that people are willing to pay for, and getting paid for it on the side by a few people who are willing to pay. Would McDonald’s have the right to expect something like that? Would it affect their business? Such an agreement should technically be considered some kind of monopolising, bullying tactic. It would, however, be different if I was flipping burgers in Maccas and whispering sweet nothings in customers’ ears while I giving them their order and flipping my business card into their pockets.

  • Thanks, Brandon V and Andrew. Now that makes much more sense and is in line with the way I think as well. I’ll forgive those who tried to make me feel bad on the basis that they didn’t understand the whole situation. To everyone else. Your input is appreciated.

  • “The only problem is that I signed the non-compete agreement. Why did I do it? Because I feared they wouldn’t give me work.” So I lied..?

  • Personally, I know what’s immoral and what’s not. Signing a contract knowing I wouldn’t do anything to derail their business efforts is enough for me to know there’s nothing bad being done here. Anyone else who thinks otherwise is a drone.

    However, legally, that’s where my concern is, hence my email to Larry. Because I was confronted with the request to sign the contract, I noticed every place around here has one as a means to protect themselves, and I knew I wouldn’t do anything to harm their business. My naivete in the industry and with legal matters, I’ll admit, contributed to me making the wrong choice and not negotiating the terms. I was just painfully worried I wouldn’t get any work and wouldn’t be able to pay bills and live.

    What I might do is confront the director and ask him if we could amend the terms so that I don’t feel stressed about it.

  • Let me see if I have this straight:

    1) You signed an agreement that you had (and still have) no intention of honoring.

    2) It’s the other guy’s fault that you’re in this situation because they shouldn’t have the right to expect you to honor that agreement.

    3) You’re totally fine with breaching that agreement, but at the same time it’s stressing you out, because….um….

    4) You’ve come to a discussion board where the explicit rule is that you have to have some sort of verifiable identity, such as a website, in order to participate, and you’ve totally subverted that by using a fake website.

    4.1) You’re totally fine with what you’re doing, but at the same time, you aren’t willing to put your own name behind it.

    5) “Personally, I know what’s immoral and what’s not.” Uh-huh.

    6) The people who are telling you that lying is bad, and that when you sign a contract, you should honor it, are ridiculous.

    Did I miss anything?

  • No Scott….. I think you hit the nail square on the head. Driving it home with one solid hit…..

  • Scott, you and several other people miss the point from your respective ivory towers.

    Instead of demonising and being sarcastic to someone who is trying to seek help and get advice on his current situation, I would have thought there would be more support on the topic as the issue is common for those who have to face it, especially those who have no one to whom they can get advice.

    Competition here is fierce and no one can get a foothold into the industry unless they know somebody. The bigger businesses have all control. The only way to work for them is to sign one of these agreements which serve the main purpose of protecting the business from disingenuous contractors who would try to steal their clients. The director himself has said that he’s ok with me and others having their own clients. And while he said it informally, I was too paranoid to bring it up at the time lest it jeopardise my ability to buy food and to live. And being impressionable and naive, by him saying that, it was perhaps an inadvertently easier way to cajole me into signing it.

    As I get to know his character a little more, I’m getting closer to the idea of discussing the matter so there doesn’t have to be any secrecy.

    And your reasoning is severely flawed by the way:

    – Where did I say it was their fault? Oh, that’s right, I didn’t. Serious confirmation bias there, Scott.

    – I’ve subverted the glorious rules by using a “fake website”? Even though good old Jerry himself hasn’t entered one either (he’s put down the site we’re on). So I guess you should burn him at the sake too, huh?

    – Why would I put my name behind it when the whole point of my problem is that I have to be anonymous so I don’t get forced out of the industry? That’s my exact problem. I WANT to be able to link my work. Use some common sense.

    – You frame the last point so simplistically it makes me think you’re trying to gather together as many ridiculous points as possible, no matter how small and insignificant. Packing it into a list might work on Jerry and the rest of your little coterie but it offers no real, helpful support at all.

    – You question my morality when at the end of the day I’m NOT stealing their clients, I’m NOT taking away their business, I’m NOT misrepresenting them, and I’m doing a great job for them and making sure their service is seen in the highest regard.

    All I’m trying to do is do a job I’m experienced in. I don’t want to work for someone else for years and give up the chance to work for myself. I’m simply trying to find a way that I can get work for me and have full control over my work and run my own business properly, without stepping on people’s toes, but by simply having my very small fair share just like anyone else.

    The best thing I can do is talk to the director and explain how I had clients before I worked for him and I want to just continue to have some work on the side and work on my business while also being there for them when they need me and maintain a good relationship with them.

  • Hello Mr. “Billy”

    To be clear, my name is Jerry Miller and my site, although it has been awhile since I have maintained it is http://www.ProPreView.com. Why the site is not coming up under this forum, I don’t know why, but it has happened before and maybe Larry can explain. But, unlike you “Billy” I am not afraid to reveal my name or anything else. I or anyone here that I know of speak from “Ivory towers”, just from a lot of hard work, perseverance and a drive to do better. You on the other hand sound like someone with an excuse for all your miss deeds and have the opinion that “The ends justify the means.” – Niccolò Machiavelli

    At the beginning of this thread, I thought you had just lost your way and wanted to give you the benefit of the doubt. Now, it is clear, you just do not have the morals of a person I would want to associate with. That, Mr “Billy” is really sad.

    It is the likes of you and your kind that think the world owes them, that prevents me from being more forthcoming in training, mentoring and hiring talent to expand my own business. You have made it much more difficult for those that are trying to do it with an honest character. Tell me “Billy”, how does one look someone else in the eye and lie so easily?

  • Technically you broke the “rules” like I did because you chose a fake link. I guess it’s even worse because you can’t competently put a proper link in a link box. Wow.

    Who are you to to question my morality. It seems to me you’re not a person of good character to malign someone who is simply seeking advice. To say you think what someone is doing is wrong is one thing, but to go out of your way to demonise them and be nasty about it, makes me think business and life isn’t going so well for you.

    It’s also disillusioned me as to this whole scene, in that how a collective group of people can be so eager to dig their claws in and make assumptions and more or less say someone is a bad person. If I openly said I stole clients and tried to go out of my way to destroy someone’s business that would be understandable.

    Your whole post about thinking I think the world owes me — it’s ridiculous. What is wrong with you? Seriously. You guys have turned something where I’m wanting to get advice from people who I thought would be strict yet supportive of my situation into a witch hunt.

    So I’m a bad person because I signed something that the guy said is just a formality, who at the same time said it was ok for me to work for other people at the same time, but it’s just to protect them from the immoral people, and my not being one of those people, I’m a bad person? I feel sorry for the people you influence with your “training.”

  • I’m a contractor. I’m not an employee. They all seem to have these non-compete agreements to protect themselves from people poaching their work. That’s the point of it. Most of it, I wonder, whether it’s even legal and binding, because there are specific rules and privileges for a non-employee that employees don’t get. One of which being that I’m not their employee.

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