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challenge: How can you effectively protect against confidentiality agreements, which similarly have
competition by independent contractors? the effect of guarding against unfair competition. A
Generally speaking, if a person or entity is an in- nonsolicitation agreement, for example, is less restric-
dependent contractor, a noncompete agreement will tive and narrowly focused at preventing an employee
not be enforceable, as the noncompete agreement from soliciting his or her former employer’s clients.
suggests a level of control exercised by an employer Unlike a noncompete agreement, a nonsolicitation
over an employee. But some states (for example, agreement allows an employee to immediately begin
Florida) allow noncompete agreements with an work in the same industry and within the same
independent contractor just like an employee under geographic area. Courts generally view nonsolicita-
certain circumstances. Accordingly, it is important to tion agreements more favorably than noncompete
check applicable state law before entering into such agreements, as they do not impose limitations on an
an agreement with a temporary worker. employee’s right to work.
While you can certainly use a noncompete agree- Consider how you structure client relationships.
ment while engaging independent contractors if you Maintaining and fostering client relationships should
are located in a state that allows it, practical challeng- be done by a firm owner rather than a temporary
es may still limit the agreement’s effectiveness. For worker or lower-level staff employee who might be
example, given the short duration and nonexclusivity reasonably expected to take a position with a direct
of relationships with independent workers, noncom- competitor. Moreover, courts often look more favor-
pete agreements may be impractical or unenforce- ably on noncompete agreements signed by partners
able. Moreover, since many temporary workers work or owners, as these employees often receive lucrative
remotely using their own mobile device or computer, payouts when they leave a firm and potentially
CPA firms have less practical ability to protect the pose a much greater threat to one’s business if they
confidential information entrusted to them. go to a competitor.

Consider ways to mitigate risk FINAL THOUGHTS
Initially, CPA firms should engage counsel to care- Many state courts and legislatures, as well as the
fully review their existing noncompete agreements to federal government, have cast an increasingly critical
assess whether they comply with current law. Ensure eye toward noncompete agreements. Many feel that
that any such agreements are reasonable in duration. such agreements are against public policy, as they
The amount of time considered to be “reasonable” unfairly restrict trade. In states where noncompete
depends on the state. The agreement should not agreements are enforceable, firms that choose to
restrict competition for too long (generally over use them should ensure that any such agreements
two years) or restrict competition in an unreason- are reasonable in scope, narrowly drafted to protect
ably large geographical area (this varies by state a legitimate business need, and not detrimental to
and the facts of each case, but courts generally look the public interest, and that the employee received
to whether the restriction is meant to protect the something of value in exchange for signing. In states
employer’s business and customers but not restrict where noncompete agreements are not enforceable,
all competition or severely limit an employee’s firms may consider alternative restrictive provisions,
ability to make a living). There should also be some such as nonsolicitation clauses, to accomplish the
consideration provided to the employee for signing same goals. At the very least, CPA firms using
the agreement. In other words, provide the employee noncompete agreements should consult with counsel
with something of value other than at-will employ- to review their existing agreements in light of
ment for signing the noncompete agreement, such as current law and assess whether those agreements
agreeing to provide additional compensation for the should be updated or whether alternative covenants
rights they are giving up should they leave. should be used.
You should likewise update your noncompete
agreements at least annually, or when the circum- Stanley D. Sterna, Esq., is a vice president at Aon, a
stances of your business and/or the laws governing global professional services firm providing risk, retire-
the agreement change. Courts are more likely to ment, and health solutions. For more information about
conclude a noncompete agreement is irrelevant to a this article, contact specialtyriskcontrol@cna.com. ■
business’s legitimate needs if it has not been reviewed
and updated periodically. This information is provided for general informational purposes only and is not
intended to provide individualized business or legal advice. You should discuss
Consider drafting and implementing alterna-
your individual circumstances thoroughly with your legal and other advisers
tive agreements, such as nonsolicitation and/or before taking any action with regard to the subject matter of this article.
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