Client poaching a contractor

[DisasterRelief]

I'm looking to get some input into a HR/contract issue we have at the moment. I know this happens often in the IT world, but we are a consultancy firm, in a non-IT field.

We run a small bespoke consulting service for clients working in various hostile environments. One of our biggest clients have approached one of our contractors who is currently contracted to them, with an offer to work for them directly as an employee. To his credit, he immediately informed us and stated that he will not breach his contract with us. Our contract with the contractor has a 12-month non-compete clause in it.

To complicate matters, a senior manager in this organisation with whom we have a strong and productive working relationship, have approached us and stated that they, the client, expects us to be flexible on this and release our contractor from his 12-month non-compete clause. Basically stating that this will be viewed very positively by the organisation and that it will be good, business wise, for us in the long term.

We have many concerns with this situation, but primarily we want to create a win-win scenario out of this. Saying no to our client can potentially have a negative business impact. Furthermore, we do not immediately have another contract available for our contractor, so it is a negative impact for him as well if we say no. Saying yes, we struggle to see how this have a positive impact on our business as we feel we are just being taken advantage of by our client. They don't seem to be able to offer anything concrete on how this will be positive for us, it is more of a "nudge-nudge, wink-wink" scenario.

 

[Ancalagon]

Very difficult one. How big is the client in terms of your business? Can you afford to walk away?

The bigger picture is that your company is allowing your client to offset some risk. By hiring your services, they aren't exposed to employment issues, which includes hiring and firing to name the least. If they want to reduce costs, they can just cancel your contract without needing to get HR or CCMA involved. If they employed these guys on a permanent basis, it affects their headcount, employment equity stats, and as mentioned, it is more difficult for them to maneuver.

If their need for the services you provide increases or decreases, it should be easier for you to accommodate that, than if they did not outsource, and instead had permanent staff.

I remember seeing a 2 axis graph that explained how to make a decision regarding doing it in house vs outsourcing. One axis was how critical it is to your business, the other was how good you are at it. When I say critical to the business, is it part of your value proposition? An example is, every company needs HR and accounting services, but most companies don't make their money from accounting and HR.

So you'll have to make sure this senior manager understands all of this - the reason for outsourcing in the first place. It is definitely not as simple as, if the guy is good, make him an offer. It is a lot more complicated.

I would say, if the senior manager still insists on making the guy an offer, and still insists you release him, walk away from the client entirely. If need be, explain to this guy's boss why you are no longer able to work with the company. If the guy's boss has any sense, he will give this senior manager a talking to about supplier relationship management.

 

[deweyzeph]

I think it's morally and ethically wrong to make contractors sign non-compete clauses. What justification do you have for this?

 

[Drifter]

I think it's morally and ethically wrong to make contractors sign non-compete clauses. What justification do you have for this?

I have never done a contract without a non-compete/restraint of trade clause. I started contracting in 1994.

 

[Hamster]

Ask them to buy out the contract? Or 80% of it.

 

[creeper]

I remember seeing a 2 axis graph that explained how to make a decision regarding doing it in house vs outsourcing. One axis was how critical it is to your business, the other was how good you are at it. When I say critical to the business, is it part of your value proposition? An example is, every company needs HR and accounting services, but most companies don't make their money from accounting and HR.

I suspect you are talking about Mclvor, R. (2008) what is the right outsourcing strategy for your process?, European
Management Journal, 26, pp. 24-34. Not many classes lecture in this, but I am aware of a post-grad subject at WITS that does

 

[Beachless]

Many of the contract houses I dealt with have been employment agents as well and charge the standard % of annual type of rates. If the client wants the contracter then they pay the recruitment fee.

What does the employee say? If he wants to stay with you its a bit of a mute point anyways.

 

[deweyzeph]

I have never done a contract without a non-compete/restraint of trade clause. I started contracting in 1994.

I've been an IT contractor for almost 15 years and I've never signed a contract with a non-compete clause. What would be the point of being a contractor then? I would have no job when my contract finished.

 

[DisasterRelief]

Very difficult one. How big is the client in terms of your business? Can you afford to walk away?

At the moment at least I don't see them as a client we can walk away from.

This specific contract runs out in about 90 days and due to their internal policies it cannot be renewed nor can the position again be filled by a contractor. Thus for them the easiest solution is just to hire our contractor as a full time employee. For us it is more about the continuation of contracts in other areas with them. One of the options we are looking at at the moment is to have a discussion with the senior people in the organisation we have access to, and reiterating that this is quite suspect behaviour from their side. Your points with regards to the outsourcing model should come in quite handy in these discussions.

But ultimately we don't see how we have a choice on not agreeing to this. This organisation is overly bureaucratic and they have a lot of unpleasant internal politics. But walking away is not yet and option, although we have seriously considered it.

 

[Compton_effect]

So. The contract runs out in 90 days, cannot be renewed, and cannot be filled by a contractor. And they tried to poach your contractor, who is locked into a non-compete clause.

Do you have a new contract for him in 90 days?
Do they have anyone else that can fill his position? (doesn't sound that way)
Does he want to continue working there? He just soured his relationship with management there by snitching on them, and you say they have strong internal politics. (I hate that ****)

 

[DisasterRelief]

I think it's morally and ethically wrong to make contractors sign non-compete clauses. What justification do you have for this?

To be honest, I have not considered this. I can understand the reasoning behind this but will have to look into it more thoroughly before thinking of changing our standard contractor contract.

The most immediate argument is that in our field, we provide very tailored consulting services to satisfy very specific needs. The clients who avail themselves of these services, do not specialise in the type of service we provide, and generally do not have the knowledge or experience to produce the product that they require nor the ability to recruit successfully for persons to fill the position. Thus, we provide a valuable service and by protecting our ability to do so, we ensure that we can keep on providing that service.

 

[DisasterRelief]

So. The contract runs out in 90 days, cannot be renewed, and cannot be filled by a contractor. And they tried to poach your contractor, who is locked into a non-compete clause.

Do you have a new contract for him in 90 days?
Do they have anyone else that can fill his position? (doesn't sound that way)
Does he want to continue working there? He just soured his relationship with management there by snitching on them, and you say they have strong internal politics. (I hate that ****)

No we don't have a guaranteed position for him at the moment.
No they do not.
He wants to take the them up on the offer. His personal circumstances being a big motivation. He seems to manage working with them quite well so far, so I am sure he will survive. Although, he may not like it very much after a few months.

 

[Wasabee!]

I've been an IT contractor for almost 15 years and I've never signed a contract with a non-compete clause. What would be the point of being a contractor then? I would have no job when my contract finished.

+1

 

[Compton_effect]

No we don't have a guaranteed position for him at the moment.
No they do not.
He wants to take the them up on the offer. His personal circumstances being a big motivation. He seems to manage working with them quite well so far, so I am sure he will survive. Although, he may not like it very much after a few months.

There you have it. If you let him go out of the non-compete, on your terms - you lose nothing, and gain lots of points from your client.
Just make t clear with the client you are not happy how this was handled. Propose that they buy him out.

Besides - the labour law is clear on this - you cannot withhold someone from working in his field of expertise.
If this goes to the CCMA, you will most likely lose, and damage your reputation.

 

[Neoprod]

Restraint of trade (non-compete) are messy if contested...your company would have to demonstrate that the employee would not be able to provide the service required by the new company without having gained some proprietary information from your company (training, expertise etc.).

If the new company is hiring him to practice a skill he learnt prior to being employed by you, I don't think the non-compete would stand up to scrutiny. However, the opposite ruling is also possible where he can only provide the service using expertise he gained from employment with you.

It's not as clear-cut as a clause on paper.

 

[DisasterRelief]

There you have it. If you let him go out of the non-compete, on your terms - you lose nothing, and gain lots of points from your client.
Just make t clear with the client you are not happy how this was handled. Propose that they buy him out.

That is kind of how we see it.

Besides - the labour law is clear on this - you cannot withhold someone from working in his field of expertise.
If this goes to the CCMA, you will most likely lose, and damage your reputation.

I should have clarified this earlier, but this does not fall under South African law or jurisdiction in any way. However I doubt the actual laws under which it falls will be much different.

 

[HavocXphere]

Inclined to agree with Compton...

Non-competes are very difficult to make stick from a legal point of view. So trading that away as a bargaining chip isn't too bad of a loss. The bigger problem is that you're losing a reliable contractor *and* a revenue source and in return getting exactly nothing. Comes down to what the chances are of you working with this client again in future.

You can try to bluff and try to extract something more tangible in return but ultimately you will have to fold.

Besides - the labour law is clear on this - you cannot withhold someone from working in his field of expertise.

Pretty sure you can as long as they receive clearly designate compensation that relates to the restraint of trade.

 

[Compton_effect]

That is kind of how we see it.



I should have clarified this earlier, but this does not fall under South African law or jurisdiction in any way. However I doubt the actual laws under which it falls will be much different.

Hostile environment, foreign company, bespoke field...
If so - I'm speaking from experience - settle with them and let him work for them. A certain large mining company was notorious for poaching guys from a software company I worked for. Management tried to go the legal way once, and was promptly stomped on from a great height.

 

[DisasterRelief]

Hostile environment, foreign company, bespoke field...
If so - I'm speaking from experience - settle with them and let him work for them. A certain large mining company was notorious for poaching guys from a software company I worked for. Management tried to go the legal way once, and was promptly stomped on from a great height.

Yeah, that is more or less how we feel this is going.

Thanks everyone for all the input!

 

[Drifter]

I've been an IT contractor for almost 15 years and I've never signed a contract with a non-compete clause. What would be the point of being a contractor then? I would have no job when my contract finished.

No, you can work at a different company in the same field. You just cant work at the same company for a different contracting house, or as a private contractor.