Working as a freelancer means flexibility where you can quickly and easily say goodbye to the principal and vice versa. As a freelancer, you usually work for other clients during the assignment of the principal. Can my principal impose a non-compete clause?
To avoid competing with the principal by engaging in the same or similar activity or hijacking customers or employees from him, the principal will usually want to include a non-compete clause in the contract. But how far can the principal go in doing so?
If you’re a principal, read this article on non compete clauses.
Freedom of contract vs freedom of enterprise
For certain categories of persons bound by a non-compete agreement, the restrictions and conditions are defined by law, such as for employees, commercial representatives and commercial agents. For all other persons who do not fall under these categories, the restrictions on the non-compete clause are not laid down by law, but follow from case law.
The non-compete clause must
- Always serve the legal interest of the party imposing the clause, and
- Being limited in time, space and on activities.
A cumulative test against each of these criteria is required to assess the validity of a non-compete agreement.
Legal interest
Legal interest means that the non-compete clause protects the legal interests of the person in whose favour the clause is concluded.
It should therefore be about protecting:
- Know-how,
- Clientele
- Employees
In which there is a real risk that the co-contractor may compete. Thus, if you perform an assignment as a freelancer that does not involve business-sensitive information that can be used in competitive activity, the principal cannot impose a non-compete clause.
Time, space, and activities
In time
- The period during which you work for the client, but even without an explicit non-compete clause, as a freelancer you are prohibited from competing during your assignment if you owed some loyalty.
- It is therefore important to include a clause that defines properly the rights and obligations of the parties.
- If, as a freelancer, you may also work for other clients during the assignment, it is appropriate to include that you must proactively disclose this information and that this doesn’t violate the proper performance, loyalty or non-compete clause in the agreement.
- The period after the termination of the agreement: the non-compete must be limited in duration to what is required to achieve the purpose of the agreement.
- The time needed to retain clients, protect know-how, retain staff, as well as the time needed to prevent competitors from using the experience and competences you acquire during the assignment.
- Reasonable duration: 6 to 18 months.
In space
- Restriction in terms of territory: region, city or country.
- Relative to the localisation of activities that may involve competition.
Activities
- Object limitation.
- The activities should be precisely defined.
- The activities you may no longer carry out as a consultant must refer to the activities carried out under the agreement.
The sanctions
A breach of the non-compete clause constitutes a breach of contract and you, the freelancer, are liable for any resulting damages.
- Typically, parties include liquidated damages with the possibility of recovering the higher actual damages.
- It is also possible to have the infringements stopped with the imposition of a penalty payment.
If, as a freelancer, you start working for a competitor of the principal in violation of the non-compete clause, the principal can also sue that competitor as a third-party contributor to breach of contract.
Best practices
If your principal is considering imposing a non-compete clause, you should observe the following:
- See that the clause is limited in time, space and activities, and circumstantially include e.g. which clients you have already worked for;
- If you are a freelancer operating in Antwerp for an assignment with a duration of 6 months, you will not agree to a non-compete clause for a period of 5 years for the whole of Belgium, unless this company operates throughout Belgium;
- Include that should the court find that the clause is excessive, it will be mitigated to what is acceptable;
- Ask for a fee;
- Provide that the non-compete clause is no longer in force e.g. in case of a breach of contract committed by the principal;
- Last but not least, have the non-compete clause reviewed by a legal expert or attorney to avoid that the clause is too restrictive for yourself.
Do you have questions about the non-compete clause in the principal-consultant relationship? Then be sure to contact our corporate law specialists so that we can provide you with tailored advice. You can also contact us for all your other questions relating to company law.
