Are Non-Compete Agreements Enforceable Against Independent Contractors?

Employers use several tactics to protect their interests. One common example is making workers sign non-compete agreements, which limit the ability to work or start a business in the industry. Non-compete agreements are generally enforceable against employees, but determining whether an individual is an employee or independent contractor can be challenging.

This guide discusses non-compete laws in Pennsylvania and how they apply to independent contractors and employees. If you have any questions or need urgent legal assistance, contact the lawyers at Weisberg Cummings today. We are ready to help.

What Are the Non-Compete Laws in Pennsylvania?

Non-compete agreements are restrictive covenants in employment contracts. These clauses or contractual provisions prohibit a party from doing something. In this context, an employee who signs a non-compete agreement agrees to avoid competing with the employer during or after employment. For example, the contract may state that the employee is barred from working with a competitor or starting their own business if that business competes with the employer’s.

Non-compete clauses usually limit the employee’s ability to engage in a competitive activity to a geographical location and duration. In other words, the agreement may state that the employee must avoid working in a defined area for one year after the employment. The non-compete clause may also stipulate the industry to which the restriction applies.

In Pennsylvania, the non-compete is governed by judicial decisions or precedents. Considering that these contracts can significantly impact your career prospects, consulting an attorney before signing them is essential. An attorney can help you understand your rights and options if you have already signed one. They may also negotiate to have them removed.

How Does a Non-Compete Agreement Work?

The non-compete clauses outline the terms under which a worker agrees not to engage in certain competitive activities that could harm the employer’s business interests. The provision must be equitable and fair to both parties and contain the following:

1. The reason for enacting the non-compete agreement
2. The location the agreement covers
3. The date on which the non-compete agreement begins
4. How the worker will be compensated for agreeing to the agreement’s terms
5. The specific dates during which the worker cannot work in a competitive sense

Note that the duration must be realistic as the contract cannot permanently bar workers from furthering their careers in the field.

Who Is an Independent Contractor in Pennsylvania?

In Pennsylvania, an independent contractor is primarily an individual who is self-employed or a business entity that offers services under a contract. Independent contractors are not considered employees as they manage their own business operations. Three main factors are considered when determining whether an individual is an employee or an independent contractor. These are:

• Financial control: How much financial control does the employer have over the worker? If a business has the right to control or direct the business and economic aspects of a worker’s job, then the worker may be considered an employee.
• Behavioral control: How much behavioral control does the employer have over the worker? When the company has the right to control and direct the work that the worker performs, they may considered an employee.
• Relationship between the employer and worker: The relationship between the employer and the worker is crucial. The written contract, benefits, permanency of the relationship and the services the worker performs all inform the relationship.

Are Non-Compete Clauses Enforceable Against Independent Contractors in Pennsylvania?

First, non-compete agreements are generally enforceable against independent contractors if the clause reclassifies them as employees. Courts uphold restrictive covenants in arrangements outside traditional employer-employee relationships, such as independent contractor contracts, if the provisions establish a relationship akin to an employer and employee.

Second, the terms of the non-compete must meet established criteria to be considered enforceable. These are:

1. The clause must accompany an employment relationship between the parties.
2. The restrictions must be reasonably necessary to protect the employer.
3. The restrictions must be reasonably limited in geographic extent and duration.

Reasonableness is determined on a case-by-case basis, but factors like the following guide the court:

1. The nature of the business
2. The scope of the non-compete clause
3. The facts surrounding the transaction

If a non-compete clause unreasonably restrains your ability to work, most courts will likely refuse to enforce it.

What Happens if an Employee Is Misclassified as an Independent Contractor?

Non-compete clauses will likely be unenforceable if an employee is misclassified as an independent contractor. Typically, independent contractors are experts in their chosen field and can work for multiple companies. They do not have the same benefits as employees and manage their affairs independently. For example, they pay their own taxes and are liable for their own legal wrongs. Therefore, any clause in a contract that prohibits them from working with the competitors of the contracting party will likely be deemed unreasonable and void.

What Are the Implications of Non-Compete Agreements?

Non-competes have various implications, including the following:

• Restriction on job mobility: As a worker, non-compete agreements can limit your ability to seek new job opportunities in the same industry or geographic area. Such a restriction can hinder your career advancement.
• Restriction on business creation: Non-compete agreements can limit your ability to establish a business. Depending on the contract terms, you may be forced to wait until a specified duration or start your business elsewhere.
• Impact on income: Restrictions on your ability to take on new projects or work in the industry can impact your finances. Sometimes, the bar continues even if your relationship with the employer ends.
• Impact on innovation and competition: Non-compete agreements may stifle innovation and competition. When employees cannot use acquired skills and knowledge in the industry, this can limit the flow of talents and ideas.

How Independent Contractors Can Navigate Non-Compete Agreements

You can navigate the challenges associated with independent contractors and non-compete agreements by doing the following:

• Review agreements: Always read employment contracts and understand the terms before signing. Determine the nature of the employment and potential limitations to protect your interests.
• Negotiate terms: Negotiate the terms of the non-compete agreements to make them more reasonable and less restrictive. For example, you can reduce the duration, include exceptions or remove the clause altogether.
• Seek legal advice: Legal support is optional but extremely beneficial when reviewing or negotiating employment contracts. Attorneys have the experience to identify potential challenges and provide tailored solutions.

Learn More About Independent Contractors and Non-Compete Agreements

Contract disputes are common, so reading and understanding the terms is crucial before signing. Non-compete agreements can affect your career or business prospects and, consequently, your income. Ensure that your relationship with the employer is not misclassified, as that can lead to unexpected challenges. It’s often best to reach out to a trusted attorney before signing an employment contract.

The employment lawyers at Weisberg Cummings can help you protect your rights. We can review and negotiate the contract terms to ensure they are reasonable. Also, our lawyers can assist if you have already signed the contract and want to know how it affects your business.

We have years of experience in the industry and provide personalized, thoughtful services to workers in Pennsylvania. Want to learn more? Contact us now for a consultation!