Are Independent Contractors Bound to Non-Compete Agreements in Texas?
Are you an independent contractor in Texas? Do you know if you you have a non-compete agreement with the company you work for?
Wood Edwards LLP is here to help you understand what a Texas non-compete agreement can mean for independent contractors in Texas.
Independent contractors in Texas often want to know: Am I bound to a non-compete agreement under Texas Law? Yes, in Texas, there is no prohibition against binding an independent contractor to a non-compete agreement.
The usual requirements (the covenant must be ancillary to an otherwise enforceable agreement, and the restrictions must be reasonable in scope) apply to an independent contractor non-compete agreement.
To be clear, many employers in Texas hire independent contractors, and those independent contractors can be bound to non-compete agreements as long as the terms of the non-compete agreement make it enforceable under Texas law. We will say more about independent contractors and the requirements for an enforceable Texas non-compete agreement.
A quick note from attorney Robert Wood:
I’ve spent the entirety of my 20+ year career reviewing business and employment contracts, in addition to fighting for my client’s interests in contract disputes. Whether you need a professional review of a proposed contract, a contract from scratch, or help resolving a contract dispute, I want to put my skills to work for you.
What Is an Independent Contractor?
Some employers and workers in Texas might believe that independent contractors cannot have non-compete agreements due to their employment status. As the Internal Revenue Service (IRS) explains, independent contractors are different from employees.
Employees have an employer-employee relationship. This means the employer can control aspects of the employer’s work (such as when the employee works or where the employee works). According to this, independent contractors are self-employed for purposes of tax obligations.
There are no required factors to determine who is an independent contractor versus an employee. Generally speaking, the IRS clarifies that evidence of a person’s classification falls into three categories:
- Employer’s control over the worker’s behavior (when, where, and how the job becomes complete);
- Employer’s control over business aspects of the worker’s job (e.g., how the worker gets payment, whether worker gets reimbursement by the employer for expenses, whether the employer provides tools); and
- Type of employment relationship (e.g., whether there is an employment contract, whether the worker has benefits, whether the worker is eligible for insurance through the employer).
A “weighing” of factors usually occurs for purposes of classifying an employee. To be clear, just because a worker ultimately gets classification as an independent contractor does not mean that the worker cannot enter into an enforceable non-compete agreement.
Elements of an Enforceable Non-Compete Agreement Involving an Independent Contractor
Whether a worker is an employee or an independent contractor, the same elements must exist in order for a non-compete agreement to be enforceable under the Texas Covenants Not to Compete Act:
- Reasonable restrictions in terms of scope and duration; and
- Consideration for the worker.
Non-compete agreements limit a worker’s ability to perform similar tasks for other employers. So, non-compete agreements can be especially complicated for independent contractors.
An enforceable non-compete agreement results in the employer exercising certain control over who else the independent contractor works for. Also, where the independent contractor works. So, the existence of a non-compete agreement—depending upon the specific facts of the employer-worker relationship—could end up meaning that the worker actually should be classified as an employee for tax and benefits purposes.
While a worker’s classification either as an employee or an independent contractor does not have bearing upon whether a non-compete agreement is enforceable under Texas law. It is important for employers and workers to understand the existence of a covenant not to compete. This could end up making the worker look more like an employee than an independent contractor.
Both employers and workers should take this issue into account when deciding whether to sign a non-compete agreement.
Wood Edwards LLP Can Help With Your Texas Non-Compete Agreement
We assist many employees bound by non-compete agreements in Texas. Also, we are extremely familiar with Texas law governing these types of agreements. Our firm has substantial experience with this field inside and outside Texas courtrooms.
In addition to employees, we also represent companies. This makes us incredibly valuable because we know how employers can view violations of non-compete agreements.
The key takeaways here are that Texas non-compete agreements are enforceable. Texas courts tend to be friendly to employers when it comes to enforcing non-compete agreements. At the same time, the non-compete agreements still must be reasonable to be enforceable.
If you are party to a noncompete agreement, or have a legal matter involving a non compete in Texas, contact us today.