“Can I make my independent contractors sign non-compete agreements?”
Theoretically, you could compel someone uninformed and/or desperate enough into signing 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.”
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 industries (*cough*salons*cough) and passed or 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.
In my opinion, there are very, very few justifiable reasons to utilize an independent contractor designation in our industry. Just don’t do it. Too few of you understand it.
The contract likely won’t be valid at all. A non-compete is something an employee signs, not a “self-employed” contractor. 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.
“But they signed it and agreed to it! Can’t I sue them for violating it since they signed it?”
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 make you their boss, 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.
TO ME, 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.
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 accountable for those back taxes, for violating federal employment law, and for violating any applicable state labor laws that pertain to the situation.
The lesson in all this? 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’re saving on their employment taxes 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 in your state, but an employee according to the federal guidelines. In any case, the 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 booth renters are concerned.