Can I Restrict My Contractor From Setting Up Their Own Business?

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Table of Contents

• Non-Disclosure Agreement (NDA)
• Contractor Agreement
• Other Ways to Protect Your Business
• Key Takeaways

Working with other businesses or contractors always comes with legal risks. One of these risks is that a contractor could leave working with you to set up their own competing business. There are several ways to protect your business from competing contractors. This article sets out the different legal documents that will help restrict your contractor from starting up their own competing business.

Non-Disclosure Agreement (NDA)

If you have not yet engaged the contractor, but want to have discussions with them before working with them, you can have them sign a non-disclosure agreement (NDA). An NDA is a contract between two parties where either or both parties will disclose confidential information to the other before entering into a more formal relationship. An NDA will prevent them from disclosing that information to anyone else and is especially useful when you:

• are starting up a business; or
• want to discuss ideas that are not yet public knowledge. 

Contractor Agreement

If you do find the right contractor and are happy to engage them after the initial discussions, you should enter into a contractor agreement. A contractor agreement will provide the framework for your engagement of the contractor. Importantly, it will contain clauses that you can use to protect your business. These clauses include:

1. A Restraint Clause 

A restraint clause outlines how you can restrain your contractor from: 

• engaging your clients directly;
• starting up their own competing business; or
• soliciting other employees away from the business. 

You should make sure that the contractor clearly understands what they are and are not allowed to do. You must ensure that the clause is reasonable and will not prevent the contractor from making a living after ending their work with you.

A restraint clause will often include some provisions beneath it. This table outlines some of these provisions: 

2. Confidentiality Clause

A confidentiality clause requires the contractor not to disclose or use any information gathered during their engagement as a contractor in an unauthorised way.

You will need to outline specifically what information is confidential within the contract. It will usually include any information that is not already in the public domain. 

This includes material such as: 

• business and marketing plans; 
• tenders and expressions of interest;
• profit and loss statements;
• lists of suppliers; and
• clients you have entered into a relationship with. 

Confidentiality clauses are easier to enforce than a restraint clause as it does not have the same restrictions around restraint period and area.

Other Ways to Protect Your Business

Registering your business name and logo as a trade mark is an effective way of protecting your brand’s intellectual property (IP). Merely registering a business name without a trade mark will not sufficiently protect your business name. 

A trade mark and business name have different purposes. Business name registration is required when you want to trade under a certain name. Trade mark registration gives you exclusive rights to the name and stops others using it. Registration of each will protect your brand in different ways. Therefore, it usually is the most advantageous to register both.

Key Takeaways

There are multiple ways to protect your business when engaging a contractor. You can ask them to sign an NDA before you have an initial discussion prior to engaging them. Then, they can sign your contractor agreement once you decide to work with them. You can also have a trade mark application prepared to protect your business name and logo. If you have any questions about protecting your business from exploitation by potential contractors, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.