Can I impose a non-compete clause on my freelancers?
Working with freelancers means flexibility where you can quickly and easily say goodbye to the freelancers and vice versa. The freelancers usually also works for other clients during the assignment he or she does for you.
It is advisable to include a non-compete clause on freelancers in the agreement. This to prevent the freelancer from competing with you by engaging in the same or similar activity or hijacking customers or employees from you. But how far can you go in this?
If you’re a freelancer, read this article on non-compete clauses
Freedom of contract vs freedom of entreprise
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. To all others persons who do not fall into 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.
The 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:
- Clientele, and
in which there is a real risk that the co-contractor may compete.
A non-compete clause can also be considered invalid or ineffective. If a freelancer performs an assignment in which he or she does not acquire business-sensitive information that he or she can use in a competitive activity.
Time, space, and activities
- The period during which the freelancer works for you. Even without a non-compete clause, the freelancer may not be allowed to compete if he owes loyalty by virtue of his assignment.
- However, it is advisable to still include a clause to properly record the rights and obligations of the parties.
- The freelancer is allowed to work for other clients during his assignment. But it is appropriate to include that he must proactively disclose this information. Additional, this should not violate the proper performance, loyalty or non-compete clause in the agreement.
- The period after the termination of the agreement: the non-compete clause should 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 acquired by the consultant during the assignment.
- Reasonable duration: 6 to 18 months.
- Restriction in terms of territory: region, city or country.
- This must be determined in proportion to the localisation of the activities that may constitute competition.
In some cases, it is recommended to include a global non-compete clause, such as in the IT sector. In the IT sector, a global restriction is possible, given that these activities frequently target the entire world. These IT services are often not limited to one region, city or country. This is in line with the evolution of the digital age, in which companies operate worldwide via the Internet. However, it requires that the client already operates globally or intends to do so, and that this intention has been made known to the consultant. In addition, to enforce the non-competition clause, an interest must be present, such as important business information acquired by the freelancer.
- Object limitation.
- The activities should be precisely defined.
- The activities that the consultant is no longer allowed to perform must refer to the activities that were performed under the agreement.
The sanctions for freelancers
A breach of the non-compete clause constitutes a breach of contract and the freelancer is liable for any resulting damages.
- Parties usually 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 the freelancer starts working for a competitor in breach of the non-compete clause, you can also sue that competitor as a third-party accomplice to the freelancer’s breach of contract.
If you are considering imposing a non-compete clause on the freelancer, you should observe the following:
- Check whether the freelancer can be considered as a commercial agent because that is where the law defines the modalities of the non-compete clause;
- Limit the clause in time, space and activities, and define the legal interest;
- Include liquidated damages payable not only by the freelancer’s management company, but also the freelancer personally;
- Provide that the non-compete clause covers activities that the freelancer performs directly or indirectly (through third parties);
- Include that should the court find that the clause is excessive, it will be mitigated to what is acceptable;
- Also include a waiver clause, as well as a confidentiality clause to protect your business-sensitive information;
- Last but not least, have a non-compete clause drafted by a legal expert or attorney to avoid the clause being found to be void or ineffective.
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.