What is an Independent Contractor
An independent contractor is a separate business. If Disney contracts with Acme to build a new ride for its amusement park that is clearly a business to business transaction. Acme is an independent contractor and not employee of Disney.
But, if Disney contracts with Adam Smith to build a new ride for its amusement park it is the same situation, except instead of a corporation being the contractor the contractor is an individual.
There is no difference between a corporation and an individual. Both are independent contractors in this situation.
Noncompete issues typically arise when the contractor is an individual. The important point to keep in mind is that, if you are that individual, being an independent contractor means you have your own business.
An independent business owner will generally have more than one customer or client, and is free to provide services to competing businesses.
For example, a lawyer may advise more than one business in the funeral industry, more than one auto repair shop, more than one dentist, and so on.
Being an independent contractor means the business pays its own taxes and insurance. It is operating as an independent business and not as an employee.
Employer Compared to Independent Contractor
An employer, by definition, has the right to control the activities and performance of its employee. This is one reason why employers are legally responsible for the actions of their employees in the course and scope of their employment.
Employer's are liable for the actions of their employees in the course and scope of their employment, even if they do not know about the actions and even if the actions are intentional.
An employee has a responsibility and duty of loyalty owed to their employer. They must take actions in their employer's best interests.
An independent contractor, on the other hand, is separate. They are a vendor. A business does not have the right to control how an independent contractor does their job.
The duty of loyalty by an independent contractor is to themself. In many situations a company hiring a contractor is not liable for the actions of the contractor, unless they agree to be responsible, are subcontracting out their responsibilities, or an obligation is imposed by law.
The key point is that an employer controls the work performance of an employee. A business does not control the work performance of an indpendent contractor.
A non-compete is an exercise in control. X is telling Y he cannot do something. A noncompete means Y cannot do something after their relationship with X ends.
In the employment context a non compete agreement is not legal and will not be enforced in California. In short, although an employer can control their employee's actions during employment, that control ends when the employment relationship ends. The business cannot thereafter control where the employee works.
Why then, would anyone think a business could control where an independent contractor can work after their relationship ends? A business cannot control the contractor's activities during the contract, but it can after the contract ends?
It makes no sense, but yet I see this issue a lot.
Typically, it results from an abusive business, often an employment agency as staffing agencies as an industry can be horribly abusive.
What is happening is the business is intentionally misclassifying an employee as an independent contractor so the business can save money, not pay taxes, not pay insurance, etc.
But the business still wants to control the individual as an employee.
The result is a situation where the company illegally saves money by misclassifying the employee as an independent contractor, and then illegally seeks to prevent the employee from working for a competitor or customer after the contract ends.
In this situation the abused employee should consult with an attorney.
If you are the abusive employer reading this, you already know you are evading the law and are hoping the lumps you are about to take will pay off in the long run when compared to the employees who do not seek legal advice or are intimidated into doing whatever you want.
Usually, an employer in this situation will want to make a quick and confidential resolution before attorney's fees get out of hand.
California's Noncompetition Law Does Not Mention Employees
Another factor to keep in mind is that California's noncompete law never mentions the employment relationship. Rather, the law is any contract where someone is "restrained" from engaging in any business or trade is unlawful.
The employment context is included within this definition. So are independent contractors.
To state this another way: California' noncompete law is not limited to employees. It applies to any contract. It applies to independent contractors.
Bottom line: noncompete agreements with independent contractors are not legal in California.
Calling an employee a contractor is not a method of circumventing California's noncompetition law.
Attorney Brian Kindsvater specializes in noncompete issues and has dealt with many noncompete situations involving independent contractors.
If you have a noncompete issue contact Mr. Kindsvater right away: