NDA vs. Non-Compete – these two aren’t interchangeable legal agreements.
And one of them should send a shiver down your spine if you’re asked to sign it.
As a freelancer, a non-compete agreement can seriously damage your business growth because it operates counter to how you make your living.
I’d recommend if you’re ever asked to sign a non-compete…
Here’s why (and what I suggest instead).
**Real quick before we jump in:
Everything I share is legal education and information. It’s not business, financial, or legal advice, and it doesn’t create an attorney-client relationship between us.**
Non-Compete Agreements aren’t a freelancer’s friend
I get that everyone is out here trying to protect themselves. (I’m an attorney who works with online business owners – I really get it.)
And that’s why I don’t recommend non-compete clauses to freelancers.
Or the business owners they work with.
–Basically illegal in 9 states (including California)
–Incredibly hard to enforce against freelancers
–Often get tossed out if they make it to court
Even in states where non-competes are legal, they will often be dismissed for their vague wording.
The Department of Labor is actually looking to ban them entirely.
That’s because most non-compete agreements:
- Limit opportunities
Freelancers typically work within specific industry niches. Non-compete clauses try to prevent you from working with anyone in the same (or similar) industries you’re currently engaged in. This seriously limits your ability to take on new projects and find work.
- Result in lost income
Depending on the time period a non-compete covers, you could end up with large gaps between projects or a reduction in available work.
- Restrict your experience and portfolio building
A non-compete clause can limit the type of projects you’re allowed to include in your portfolio, making it harder to demonstrate your capabilities and attract new clients.
- Can harm your client relationships and reputation
A non-compete clause can isolate you from your networks and prevent you from working with existing clients on future projects. It’s not hard to imagine how this can lead to potentially strained client relationships and missed opportunities.
If you’re asked to sign a non-compete agreement, take the opportunity to educate your client on why such agreements run counter to how most freelancers make a living.
And why you’d be much more amenable to signing an NDA.
NDA vs. Non-Compete: NDA (Nondisclosure Agreements) are much better for business
Where non-Compete agreements are restrictive and limiting, nondisclosure agreements (NDAs) are protective and flexible.
That’s because NDAs:
- Focus on confidentiality
An NDA protects sensitive information shared during the project. It restricts you, as the freelancer, from disclosing proprietary information to third parties and helps you reassure clients that you’re not divulging their information.
- Are limited in duration
NDAs usually have a specified period for which the confidentiality obligations apply (often tied to the project’s timeline). Once the project is complete or the duration expires, the freelancer is free to work without any ongoing restrictions.
- Allow you to expand your expertise and diversify clientele
Where signing a broad non-compete clause might restrict your ability to accept work from any client within a certain sector – an NDA allows you to protect confidentiality without affecting your ability to secure different types of projects.
- Gives you a certain amount of negotiation leverage
Since NDAs are more focused on protecting confidential information, you can redline aspects that run counter to your business and request revisions to the NDA. This negotiation process allows you to set more favorable and less restrictive terms for freelancing.
Reject non-competes the right way
Turning down a non-compete doesn’t have to mean you’re turning down the opportunity to work with that client.
If you can approach the conversation collaboratively, with mutually beneficial points, you’ll help educate more business owners and employers on why an NDA is best.
And still walk away with the relationship – and project offer – intact.
Here’s a step-by-step approach you can take:
- Understand your client’s concerns
Start by having an open conversation with your client to understand why they want you to sign a non-compete clause.
Are they primarily concerned about protecting sensitive information, preventing competition, or something else?
Understanding their perspective will help you tailor your explanation.
- Explain the effect on your freelancing business
Briefly describe what an NDA and a non-compete clause entail and why a non-compete negatively impacts your freelancing style of business.
You can explain that an NDA primarily focuses on safeguarding confidential information, while a non-compete clause restricts your ability to work in a specific field or with certain clients for a period of time.
- Emphasize collaboration and flexibility
Highlight how an NDA encourages collaboration and allows you to work freely with various clients and industries.
Explain that an NDA is a commitment to protecting your client’s confidential information without limiting your professional opportunities.
- Mitigate the risks
Explain how an NDA can effectively protect the client’s sensitive information from being disclosed to third parties (which is often the primary concern of clients seeking non-compete clauses).
By protecting their intellectual property, you’re helping them avoid potential legal disputes and reputational damage.
- Talk about client relationship continuity
By not signing a non-compete clause, you’re enabling the possibility of a long-term professional relationship.
You can work together on future projects without the limitations a non-compete clause would impose.
- Discuss negotiation flexibility and legal considerations
Focusing on an NDA means you’re more open to negotiating terms that work for both parties.
You’re working to find a solution that aligns with your client’s needs while respecting your professional aspirations.
- Reiterate your commitment to your client and the project
Reinforce that you’re willing to work collaboratively to find the best way to protect their information while supporting your own professional growth.
And if your client still isn’t convinced that an NDA is preferable over a non-compete?
Really think about how much of your business – present and future – would be impacted by giving in and signing that non-compete.
The more freelancers and independent contractors reject non-competes, the better it will be for freelancers collectively and the more educated your clients will be.
And if you need help sorting out an NDA that covers you and your client – we’ve got you covered with a nondisclosure template in the shop.
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