Independent Contractor and Non Compete Agreements
Independent contractors and non compete agreements are not a common procedure.3 min read
Independent contractors and non compete agreements are not a common procedure. Non compete agreements state that one party agrees not to work for a competitor or specified industry for a designated period of time and location.
Independent contractors own their business and provide goods or services to businesses or within an industry. Normally, this is more than one business which is why non compete agreements cannot be enforced with independent contractors. Enforcement of such a contract would result in a negative impact on overall profits, and possibly the overall survival of the business.
Employee or Independent Contractor
Businesses looking to work with independent contractors should consider alternate agreements to cover legitimate concerns such as confidentiality and non-solicitation agreements. One of the main reasons the type of agreement should be reviewed before moving forward is to avoid unintentionally classifying an independent contractor as an employee.
If an employer has an independent contractor sign a non compete agreement, they may be deemed to be exerting control over the employee. This may result in the business owing penalties, overtime pay, workers' compensation premiums, contributions to unemployment insurance programs, and other benefits.
Real World Case Study
Reading & Language Learning Ctr. v. Sturgill, Circuit Court of Fairfax County, Virginia, August 4, 2016, Case No. CL-2015-10699, is a case that demonstrates the importance of understanding the difference between an employee and an independent contractor.
In this case, Charlotte Sturgill required a clinical fellowship with supervision to receive certification for her speech therapist training. She signed with Reading & Language Learning Center (RLLC) for one year period as an independent contractor. The agreement included a stipulation that the parties agreed to not "employ any contracted employee or contract with any current client of the Other for a period of two years."
At the completion of the year, Sturgill began employment with Ingenuity Prep as a therapist full-time. RLLC had previously partnered with Ingenuity Prep to offer services of another business as a subcontractor. RLLC alleged in their suit that Sturgill had violated her non compete when she began working for Ingenuity Prep.
Sturgill won the case based on several circumstances found relevant by the court. First, the non compete signed by Sturgill failed what is known as the "janitor" test. The "janitor" test indicates that the agreement prevents an employee from obtaining work at a competitor in any capacity, not just in the role they held. This is considered to be an overreach by the employer.
The Court also ruled that if the non compete was enforceable, which it was not, Sturgill was not in violation of the agreement based on the language RLLC used. The signed agreement stated, “RLLC and the Consultant agree not to employ any contracted employee or contract with any current client of the Other”. The Court interpreted this wording to indicate Sturgill was unable to be an independent contractor, not an employee, and therefore Sturgill was free to be an employee of Ingenuity Prep.
Last, the Court found that RLLC had incorrectly named Sturgill. Sturgill was not an independent contractor, she was technically an employee. The Court noted that RLLC treated Sturgill as an employee by supervising her work, determining which schools she visited and when, and the number of students she would see per week. Because RLLC controlled her hours, treatments plans, and she met with supervisors frequently, she was determined to be an employee, not an independent contractor.
Lessons Learned from Reading & Language Learning Ctr. v. Sturgill
The Court in Reading & Language Learning Ctr. vs Sturgill ruled that RLLC's incorrect classification of Sturgill was a violation of public policy. This then caused issues with both federal and Virginia laws due to the employer's failure to pay required employment taxes. The case spotlights important lessons in employment law.
- avoid using templates for legal agreements
- custom tailor agreements to best match their business and intent
- review non compete agreements periodically to ensure they still match the current enforceable standards
- confirm proper use of language
In general terms, an independent contractor should not be expected to sign a non compete agreement as it will be considered unenforceable if challenged.
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