More than 4 million Australians participate in the freelance economy. Many perform small, one-off tasks through platforms like Airtasker. Other participants have left the permanent workforce to focus on developing their client base full-time. These freelancers are likely to sign a contractors agreement for the provision of services. The agreement details conditions surrounding matters such as pay, obligations and a brief of the services you’re to perform. Many contractors agreements will also contain a non-compete clause. But what is a non-compete clause and what’s its effect? We answer these questions below in more detail as well as what options freelancers have if they are unhappy with the clause.
What is a Non-Compete Clause?
A non-compete or ‘restraint of trade’ clause is a way for businesses to receive compensation if a key employee, or freelance contractor, takes their skills and insider knowledge to a competitor. The clause survives termination of the contract for a predetermined period. If the freelancer breaches the clause, the business can seek damages for breach of contract.
When Are Non-Compete Clauses Valid?
However, a non-compete clause must protect the legitimate interests of the business and cannot be unnecessarily restrictive. Courts will then consider the following factors:
- size of the industry the freelancer is working in;
- nature of the freelancer’s role;
- scope, breadth and length of the restraint;
- time of the restraint;
- future probabilities that the business could have foreseen;
- effect of the restraint on the freelancer’s ability to earn a wage;
- bargaining power of the business and the freelancer; and
- effect on the business should the court find that the restraint is unenforceable.
What Does a Non-Compete Clause Look Like?
The contents of a non-compete clause will vary depending on the industry and business. However, they typically contain some form of limit (e.g. geographical restraint, time, sector or business) that the freelancer will agree to before starting work.
A ‘cascading’ non-compete clause that covers both time and geographic area is common in contracts. If disputed, the business presents a number of different options so that they have some protection. For example, a business might structure a non-compete clause the following way:
|Geographic Limit||Time Period|
|All of Australia||5 Years|
|New South Wales||4 Years|
|10km from Premises||2 Years|
|5km from Premises||1 Year|
If the court believes the clause is too restrictive, then they’re required to go through the list and assess what would be reasonable.
Other non-compete clauses may have more simple restrictions such as just one geographic and time limit, industry or business type.
What Can Freelancers Do If They Are Unhappy About the Restraint?
Litigating a matter is expensive and time-consuming. Freelancers should review the clause and decide whether they are comfortable with the limits. If you are dissatisfied with the non-compete clause and don’t believe it’s reasonable, negotiate. Perhaps the business is primarily concerned about a key competitor, in which case you could propose limiting the scope of the clause to that business. Alternatively, you could suggest a more limiting clause that still protects the genuine interests of the business but allows you to continue your work.
It’s entirely up to the company whether they agree to your offer. If your requests are reasonable and they want your services, you’ll have a better chance of amending the contract. However, the business may decide they’re unwilling to adjust the scope of the clause. In which case, you can either accept or reject the terms of that deal.
Businesses will seek to protect their legitimate interests through the use of a non-compete clause. If you are a freelancer, ensure you understand the terms of each contract so as to minimise the risk of unintentionally breaching the non-compete clause. Consider negotiating the non-compete clause if you believe it’s too restrictive or walk away from the deal should it unreasonably affect your ability to do business.
If you have any questions about yoru restraint of trade clause or need help negotiating your contract, get in touch with our contract lawyers today on 1300 544 755.