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Independent Contractor Competition Restrictions

On Behalf of | Sep 13, 2021 | Employment Law

Many workers provide their services as independent contractors and not as employees thereby obtaining an IRS Form 1099 at the end of the year instead of an IRS Form W-2 for their taxes.  However, there are rules aimed at making sure that companies do not take advantage of workers by misclassifying them as independent contractors and thereby losing certain benefits and protections afforded employees. However for some workers they prefer the greater independence being an independent contractor affords them, along with often the increased take home pay, and are willing to forgo such employment benefits as worker compensation and unemployment protections.

The classification of a worker as an independent contractor or employee is also relevant when the worker has agreed in a contract to not compete with the company.  However whether a worker is an independent contractor or an employee, the Courts will generally enforce an agreement that: keeps the company’s private information confidential; prohibits the worker from taking other workers with him when leaving; and prohibits the worker from taking customers of the company he previously serviced. Often the courts find a year to be a reasonable time restriction of how long after leaving the company the worker needs to stays away from his former co-workers and customers.  While such terms are sometimes within a non-competition agreement, many courts consider them a non-solicitation agreement which judges are more likely to enforce, whether the worker is an independent contractor or an employee.

A pending New Hampshire Federal Court case addresses these issues in the case of Andrea Pollack v. Goodwin & Associates.   Goodwin & Associates (“Goodwin”) is a recruiting firm in the hospitality industry. Andrea Pollack and her co-worker were prior independent contractors performing recruiting for Goodwin and signed agreements promising to keep private information confidential, not take other workers from Goodwin, and not take customers they worked with while at Goodwin.  Pollack and her co-worker sued Goodwin alleging, among other things, they were misclassified as independent contractors when they were employees and therefore lost out on employment benefits.  Goodwin counterclaimed alleging that they breached the confidentiality agreement, took at least one of Goodwin’s customers they worked with, and were attempting to take other independent contractors from Goodwin.  In that case, Goodwin got the judge to knock out several of Pollack’s and her co-worker’s claims, yet they can still argue they would have received better benefits as employees if they had not been misclassified as independent contractors and Goodwin will deny those allegations.

Simply put, judges will: enforce agreements that prevent cheating in the employment relationship whether it be workers taking confidential information, fellow workers, or customers they previously serviced; or companies taking advantage of its workers by misclassifying them as independent contractors.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].