Working as an Independent Contractor with a Non-Competition Contract
I am keeping count (rough count) and think at least 60% of the calls we get from employees needing advice about their non-compete agreements, want to move from position as employee, to that as “independent contractor,” essentially doing the same work.
The following is a typical scenario:
QUESTION: “I have been working for Company A, on a government contract for the last 6 months. They hired me specifically to do that contract. Now the contract has expired, and the government agency wants to hire me as an independent contractor, and cut out the middle man. Is this is a problem?”
ANSWER: “I can’t tell whether it is a problem until I review your agreement, but yes, I am confident that if you have a non-compete, it prohibits you from this exact activity.. yes, this could be a problem.”
So, for our government contractor friends, here is my advice:
- DO NOT SIGN A NON-COMPETE.
Yes, I realize this advice is little too late, but it is still my duty to preach the message. What message? The gospel of free enterprise and evils of restrictive covenants (sorry, I have evangelical roots).
- DON’T COUNT YOUR CHICKENS UNTIL THEY HATCH
An old phrase, but applicable. When leaving one job, to start your own business, be aware and cautious. The following actions will come back to haunt you:
- Starting a company before your leave the old one;
- Website / marketing / Social networking posts on new business before the ink dries on your old job;
- Thinking that the Government (or whatever client) will want you so bad, they will go to bat for you should litigation occur. (I have heard at least 5 people tell me in the last week they thought the Gov’t would give them leverage to get out of the non-compete and each and every time, the government comes back and says they don’t want to get involved).
- ATTEMPT TO NEGOTIATE A RELEASE
- Cost of defending a breach of contract case, $20,000 – $40,000, v. cost of a non-compete buyout at $20,000 — No comparison. Put ego aside and save some time and money.
- BE CAREFUL – everything you do / say will come back and bite you in the you know where. Everything. What you write in a Christmas card, email, etc – may turn into a Business Tort claim (breach of fiduciary duty, conversion etc).
- GET AN ATTORNEY TO HELP REVIEW THE CONTRACT
I love the American spirit that encourages people to go out on their own. I am grateful that people have skills that allow for them to essentially be their own boss – but when you have entered into a legally binding contract that prohibits that activity, you must be careful. Very careful.
So before you decide to go independent, make sure the option is really as sound as you think it is. Sadly, many of my clients are finding if unprepared, they are not allowed to serve independently and not welcome back to their old job – leaving them without work, and with legal fees.