Getting paid on time and having the freedom to take on different clients is essential in the trucking industry, yet both can be hurdles for brokers and truckers to overcome. That’s where freight factoring comes in, but there’s been questions over non-compete agreements and how they impact non-compete agreements.
In 2024, the Federal Trade Commission (FTC) enacted the Noncompete Rule, prohibiting noncompete agreements as they’re considered an “unfair method of competition.” A district court ruled against the FTC and the ban is currently being appealed. Despite this, the FTC still encourages workers to contact them if a noncompete agreement is required as the FTC still has the power to look at the fairness of individual cases.
What Is a Non-Compete?
Before explaining how non-competes work in the realm of freight factoring, it helps to understand non-compete agreements. They’re terms in a contract that prevent you from partnering with one of the client’s competitors or starting a similar business when the working relationship comes to an end.
For example, you’re a broker and help a business get their items to the correct location by arranging the best trucker for the items being hauled. The shipper you’re working with wants a non-compete. If you part ways, you cannot work with any of the shipper’s competitors or transition your company into a shipping business.
You might be a trucker and the broker you’re working with requires a non-compete preventing you from working with other brokers or directly with shippers if you decide to end the contract. Non-competes are often unfair, hinder growth and revenues, and don’t benefit you at all. That’s why the FTC is working to ban them. Per the TFC, 18% of U.S. workers are under non-competes and removing them can increase wages by more than $500 per year and make it easier to grow a new business.
Non-compete agreements usually contain one or more of the following components.
- Definition of Competition – What types of businesses or clients are considered competition? Is it anyone in the trucking industry, or just different brokers or shippers?
- Damages – If you breach the non-compete, what are the penalties?
- Duration – How long does the non-compete last? Six months, a year, two years?
- Exclusivity – A rule designating that you must stick with the one company exclusively and cannot interact or work with anyone else.
- Geography – Is geographic location a consideration? Where are you restricted from working?
- Non-Solicitation – Prevents you from reaching out to a former or current client of the business.
- Scope of Restriction – What specific activities are restricted? Such as, a truck driver can’t haul loads for any company in the agricultural industry.
Freight Factoring and Non-Compete Agreements
Can a non-compete agreement impact a freight factoring agreement? It can, but it depends on the agreement. If the non-compete agreement has a “no engage” clause, you could be restricted from both working or partnering with a competitor and opening a new business in that same field. In those cases, freight factoring wouldn’t help you as you’d have no invoices to factor.
You might have a non-compete that prevents you from attempting to form contracts with clients you worked with in the past. For example, a truck driver ends a contract with a broker and plans to eliminate using a broker in the future. That truck driver wouldn’t be allowed to haul loads for any shippers the broker worked with, even if that shipper wants to continue working with the truck driver. Again, it’s hard to factor invoices when you have no work.
It’s also important to carefully read the terms on who the contract determines is a competitor. If the wording is vague and says other trucking company businesses, a freight factor could be considered a trucking company business. You’d need clarification on how that applies before you sign anything. Ideally, work with a contract lawyer before your business signs a contract. It’s the best way to protect your business.
Make sure you know your state laws, too. While the FTC is doing its part in trying to ban non-compete agreements, some states have already taken steps to make them unenforceable in their state.
- California – Unenforceable except in cases where a partnership ends or a business is sold.
- Florida – Enforceable only if it’s protecting trade secrets, confidential business information, or relationships with current customers and clients.
- Georgia – Unenforceable if they restrain trade, but they are enforceable in cases of soliciting business after leaving the company.
- Hawaii – Banned completely for anyone in high-tech or if they restrain trade.
- Idaho – Cannot extend beyond 18 months.
- Illinois – Allowed if they protect trade secrets, solicitation of business, or confidentiality.
- Louisiana – Cannot be used by corporate directors or officers.
- Maine – Unenforceable if they prevent a worker from working in the same field or profession or in a specific geographical area, hindering the worker from finding work.
- Maryland – Unenforceable if they hinder the ability to find more work or become self-employed.
- Nevada – Unenforceable if they’re applied to a worker being paid hourly.
- New York – Unenforceable if they are burdensome, cause harm to the public, or are unreasonable in terms of length or scope.
- North Carolina – Unenforceable if they restrict commerce or trade.
- Ohio – Enforceable if they are required to protect the employer’s business.
- Oklahoma – Unenforceable if they restrict commerce or trade.
- Oregon – Cannot extend beyond a year.
- Pennsylvania – Enforceable if the restrictions are reasonable and do not restrain trade.
- Rhode Island – Unenforceable if workers meet certain qualifications, including independent contractors.
- South Dakota – Enforceable for up to two years.
- Texas – Enforceable providing the length and scope are reasonable.
- Utah – Enforceable, but they cannot exceed one year.
- Vermont – Enforceable if they’re reasonable and protect business interests, but courts ultimately decide based on case details.
- Virginia – Cannot restrict the ability to find new work unless it’s protecting trade secrets or confidential information.
- Washington – Unenforceable if the worker is self-employed or an independent contractor.
- Transparency Is Key
- Wisconsin – Enforceable if the restrictions are reasonable.
If you’ve signed a non-compete, do not enter into a freight factoring arrangement without asking questions for clarification. If you already factor invoices with another company, it’s unlikely you can work with a second freight factoring company. You must first end the contract with the existing factor.
If you have non-compete agreements with a broker or shipper, it may not impact your ability to work with a freight factoring specialist, but you might not be allowed to work with other brokers or shippers in the future. If you aren’t getting enough work from your current client and want to take advantage of Find Load apps to increase your workload, you need to make sure you’re allowed to do so.
That aspect matters if you sign up with a freight factoring company that requires a minimum number of invoices each month. If you fall short and cannot work with any other brokers or shippers, what are the penalties from not factoring enough invoices? Make sure you choose a freight factor who doesn’t penalize you for not transporting enough, or that the fees for not meeting quotas are acceptable to you.
Ask Saint John Capital about our fair, low fee freight factoring arrangements. We’ll help you understand the impact of any non-compete agreements you’ve signed and whether they’ll make it hard for you to factor your freight invoices.
