July 19th, 2007
First I must state the obvious disclaimer … I am NOT a lawyer and therefore not qualified to give legal advice. These opinions are those of a Staffing Industry professional, an owner of a staffing company and a former President of Canada’s staffing industry association (ACSESS).
At various time through this blog I attempt to explain different aspects of the staffing industry, how it works and why it is that way. Today I thought I would talk about the non-compete clause, specific to the independent contractor world … since it was the subject of a recent situation at Eagle.
In Canada an independent contractor is a business entity. As an agency I enter into a business to business relationship with the independent contractor and similarly I enter into a business to business relationship with my client. Thus a three way relationship is formed, which is just one of the ways to ensure that the employer/employee issues surrounding independent contractors is kept clean.
It is a standard in our industry for contracts to include non-compete clauses in contracts. This provides some level of protection to the agency and to the agency’s client. The following are just some of the scenarios it is designed to prevent:
1. A competitor agency (with a distinct lack of ethical standards … editorial!) proposes to a client that they will take on all of their existing contracts for less money than the client is now paying its current agencies.
2. A contractor decides to cut their own deal, either with the end client or another supplier and ends up back in the same job through someone else (or not) and the original agency gets cut out of the equation.
3. In the case where the client is another supplier, such as system integrator or software development company, the non-compete will protect them from someone else winning their business using the same contractor, or even the contractor competing themselves.
Generally speaking this approach works well, it is the one piece of security that an agency has and most people will respect the clause and its intent.
The value that the staffing industry provides to Canadian industry is significant and growing. Staffing companies incur significant costs in establishing and maintaining the infrastructure that allows them to access “just-in-time resources” for their clients, and the only time they make money is when they actually have people on contract. If those contracts are shortened or margins significantly reduced artificially then the viability of the economic model is challenged.
At the end of the day the agency does their job and wants to be paid fairly for that work, the non-compete will provide some protection for that revenue stream.