Theoretically, you could compel someone uninformed and/or desperate enough to sign anything, but should you? No. Never. Never ever ever ever ever. Requiring independent contractors to sign non-compete agreements skirts a dangerous line drawn by the IRS and many state laws.
Let me rephrase that: it doesn’t just “cross” a line, it tramples through it, spits on it, lights it on fire, and dares it to retaliate.
Non-compete agreements typically constitute an “inappropriate degree of control” over self-employed professionals.
On the federal level, there is a focus on misclassified workers. Congressional leaders are now demanding that the Department of Labor focus on investigating and punishing employers misclassifying workers and that the DOL coordinate these efforts with the Internal Revenue Service.
The IRS and the Department of Justice have initiated criminal investigations accusing business owners of using independent contractors to evade taxes intentionally and to launder money.
Numerous jurisdictions have initiated crackdowns against certain cash-based businesses and industries that have proven themselves to be a chronic problem. (Salons fall into both categories.) As a result, new laws and regulations have passed, and there’s no shortage of proposed legislation holding businesses and owners civilly and criminally responsible for misclassifying workers.
Courts are increasingly hostile to employers’ use of the independent contractor designation.
There are very few justifiable reasons to utilize an independent contractor designation in our industry. Just don’t do it. Too few of you understand it.
A non-compete agreement signed by a so-called “independent contractor” likely won’t be valid at all. A non-compete is something an employee signs, not a “self-employed” business owner. As a general rule, you cannot restrict an independent contractor’s right to work freely. By classifying someone as an independent contractor and having them sign a non-compete, you’re violating your own contract.
“Can’t I sue the independent contractor for violating the agreement since they signed it, even though the contract probably isn’t completely legal?”
Just because someone signs something doesn’t mean that the agreement will be held up in court. That contract you made them sign might actually lead to an enforcement authority determining you to be the contractor’s employer, which means they could be protected by the same laws that protect all employees. When the hammer comes down, it could be coming down on you; not them.
SUING SOMEONE FOR VIOLATING AN ILLEGAL CONTRACT IS LIKE CALLING THE POLICE TO ARREST SOMEONE FOR STEALING YOUR ILLEGAL DRUGS.
Sure, that guy stole your meth, but your ass is going to jail for having it to begin with.
What happens when an independent contractor is sued for a non-compete violation?
Suing an independent contractor for a non-compete violation could (and likely would) lead to a counter-complaint, where your “independent contractor” (read: misclassified employee) will come back at you for misclassifying them. You could then be held responsible for unpaid wages and back taxes, and held accountable for violating federal employment law and any applicable state labor laws that pertain to the situation.
Don’t classify any salon employee as an independent contractor.
When things go sour, you will be the one that suffers. The amount of money you save by evading wage and tax obligations is not at all worth it.
Please understand that each state has different guidelines they use when determining employment status and nearly all of them (with the exception of California) are less stringent than the federal government’s. Therefore, it is entirely possible for a stylist to be determined to be an IC by the state but an employee according to the federal guidelines. In any case, many agencies jointly prosecute, so you’ll have to answer to federal and state authorities (state tax/labor, and federal tax/labor officials).
For more information on why IC’s do not belong in our salons, read this post. If you test your so-called “independent contractors” against those IRS guidelines, you’ll see very plainly that they are rarely being used correctly except where proper renters are concerned.
If you want to learn more about typical salon contracts, including what constitutes a legal arrangement take my course, Know Your Rights: Contracts.