Earlier in my career, I was asked to formally end the pursuit of highly winnable managed services opportunity. Why? My then-employer had a contractual exclusivity commitment to a client that we would not conduct business with a fierce competitor — which turned out to be the organization I was pursuing. There was more than $150 million of business at potential risk. I was required to end our participation in the RFP process and formally document that decision in a written communication to the prospect.

An exclusivity contract clause is a contractual obligation that limits participating entities from doing business with others. The core principle of an exclusivity agreement clause is to prevent a supply chain partner from engaging in similar business with an organization’s chief competitors.

Exclusive contract clauses are not to be confused with noncompete agreements, which restrict employees’ activities and are not always enforceable. Exclusive contract clauses are generally enforceable and permitted by federal law and most state laws. However, because these clauses limit a supplier’s ability to serve specific brands in a marketplace during a set period of time, parties must give their use careful business considerations.

And in some circumstances, exclusivity agreement clauses can create additional risk challenges. A perfect example is including exclusive contract clauses in an independent contractor agreement. Similar to the competitive supply chain strategy of limiting engaged suppliers from conducting business with core marketplace competitors, an organization might be tempted to restrict its engaged independent contractors in the same manner.

This strategy is perfectly legal but, depending on the precise structure of the clause itself, implementing such a contractual obligation creates a significant indicia of control in the relationship with an independent contractor. This indicia of control establishes a new level of misclassification risk with the independent contractor engagement — and worse, the control is clearly documented in the IC engagement contract for all to plainly see.

One of the most important independent contractor classification risk mitigation measures is to eliminate any elements of engagement control with independent contractor talent and the engagement itself. Eliminating engagement control is a fundamental element in most, if not all, talent classification tests engaged across the marketplace. Whether you are considering the Darden test, the FLSA Economic Realities test or a state’s ABC test, control is a key classification measurement in defining the existence of independent contractor misclassification.

More specifically, each of these classification tests calls for evidence that the independent contractor is operating as an independent business concern, and it’s tough to prove that element if you are restricting an independent contractor from conducting business with your organization’s core competitors in the marketplace.

Restricting suppliers contractually from specifically engaging with core market competitors is a well-established competitive, supply chain, market strategy. It’s an important tool in the battle of market leadership with specific billion-dollar, global brand competition.

But buyer organizations need to be careful when the engaged supplier is also defined as an independent contractor. This controlling, competitive market supply chain strategy just might create an indicia of control in the IC engagement that will make it extremely difficult to defend a misclassification government audit or court proceeding.