Non-Compete Agreements & Freelance Work at Creative Agencies

Non-Compete Agreements & Freelance Work at Creative Agencies

A couple of days ago I met with a client who is dealing with some changes to her employee manual. This is a creative firm and one the questions she had was: what are the intersections between non-compete agreements and freelance work by her creative staff?

This is a pretty good question because it involves several different issues that should be addressed but rarely receive enough attention.

As a starting point, creatives gotta create. That’s what they are, that’s who they are. It’s important that they be allowed to create.

To get the best work out of a creative, however, you probably need to allow them to create in other ways. So creative companies should have policies that provide their employees with the guidelines to engage in freelance work, but under certain conditions. Conversely, I understand the need and desire for companies to have a non-compete agreement for when an employee leaves the company. We can talk about timeframes and geography, and whether non-competes a good idea. But, the fact of the matter is that a number companies have a non-compete agreement for their employees, and that’s not going to change and it may not need to change.

The question then becomes: how does a company deal with the issue of allowing freelance work, but not have it be considered a violation of a non-compete?

The simple answer is to have a very clear, specific policy to address freelance work by creative team members. What does that policy look like?

First both the company and the employee need to acknowledge two important facts:

  1. Creative work is important and has a value, both financially and mentally, and
  2. An employer has a legitimate right in making sure that creative projects are brought to the company first.

The issue will arise when a creative team member is approached to do freelance work. The freelance work might come in the form of an organization that they might work with on the side as a volunteer, perhaps as a board member of that organization, or it could be a project that might be interesting for their creative development.

There is a benefit in allowing the creatives room to expand their skills, which might be of benefit to the company. Having an employee with new skills, new contacts for potential work, and creative freedom are valuable to a company. Certainly, having happier employees is a benefit in its own right.

With a smart policy, the company is asserting a right of first refusal for creative work.

The employee policy would be for the creative employee to take the opportunity to the agency to describe the project, including the timeline and budget, and express their interest in working on the project. The employer must then, in a timely manner, decide about the proposed work. 

I strongly encourage agencies have a set of criteria to assess the proposal. Some suggestions might be:

  • This is the kind of work that the agency would like to do, versus the kind of work that you wouldn’t want to do as that creative agency.
  • The budget of the potential client.
  • The time involved in the project.
  • Opportunity for a new client base?
  • Does the firm have the resources necessary to do the work?
  • The amount of firm resources that would be needed?

The employer should be very prompt in assessing that information and communicate whether the company would like to work on that project or not. Should the agency not have an interest in the project, they must let the creators know they are free to work on the project independently.

LAWYER ASIDE: The lawyer in me says that you want to do this in writing, both to protect the company and to protect the creative. It doesn’t have to be, but I recommend at least some written communication back and forth to confirm the decision.  

If the employee does allow the creative work as a freelancer, then that employee should be entitled to all of the project’s copyrights and be paid for these efforts. Employers can reasonably require the employee perform freelance projects on their own time and on their own equipment, not on company time or company equipment. 

So, what happens if the employee does not bring one of these opportunities to the employer? If the agency has an up to date non-compete agreement, then the freelance work may likely be a violation of the non-compete agreement and the employer should take appropriate steps to address that. That may include termination of the employee for violating the non-compete agreement and for failing to bring opportunities to the company. There could be other less drastic measures, such as suspension without pay, but you must be careful of what you do. I strongly encourage agencies consult an attorney before terminating an employee under these circumstances. The employer should have and be prepared to enforce the non-compete.

A related concern, but one in which agencies should have a policy, is employee portfolio rights. The value of an employee to the company and to others is their creative work. Employees who do a great deal of work for their company over time should have the right to display the work they do. Certainly, an employer is not required by law to grant a portfolio right, but I think that from a moral and employee happiness perspective, agencies should grant a portfolio right as a matter of policy.

When an employee works for an agency, the employee’s work is, by law, owned by the employer and the employer can assert the copyrights. An employer would do well to let their employees have the right to display a portfolio, subject to a few restrictions that are clearly stated in the employee handbook. Some samples of restrictions could be:

  1. The work has to be identified as either solo work, or if they did the work as part of a team, or specifically identify the other team members. The creative employee must be clear about their own contribution. If the employee can parse the particular work out then they can highlight the part of the work that they did independently, but if its part of a team, they should name all team members who worked on the project.
  2. The employee has to specifically say that the individual created the work while employed with their agency. A link to the agency website is also possible.
  3. If the work is for a client, it should specifically name the client. Often, in agreements for creative services, the creative agency will ask for a portfolio right from the client to display the work as part of their portfolio. If the company has a portfolio right, then chances are that they can also give the employee a portfolio. When in doubt, ask the client.

These concepts of freelance work and ownership rights are one some of the most complicated when you’re dealing with creatives. Copyrights have so many different levels of rights that can be sliced and diced the way the copyright owner would like. But, employers and creative agencies should understand that there is an inherent benefit in having happy employees who can display their work. If potential clients see employee work and they like it, they may click through to the company. This is a type of advertising and a way to gain new clients. But, clear policies will go a long way to protecting everyone’s rights and interests.