Hi Jeff,
Thanks for providing such a great site.
I have a question regarding the validity of buyout clauses in temporary employment contracts. I own a small contingency staffing business in CA. I’m wondering whether a staffing firm can legally defend a buyout clause in their W2 offer letters or 1099 independent contractor contracts to prevent a candidate simply approaching a different supplier for the same client and engaging with them for their services in the same role?
We’ve had issues where the candidates once placed, negotiated a better deal with a competing agency, and simply switched to their employ instead. This is done with the blessing of clients who don’t seem to care that we were the ones who recruited the consultant in the first place. In general, client contracts are biased to favor the client, in that there is no restriction about receiving the same candidate from a different vendor.
If so, is there a specific form the buyout clause needs to take, i.e. specific wording that it should include, preclude?
Thanks for your help.
Conrad Reed President Zion Staffing, Inc
Hi Conrad,
Thanks for this timely JOC inquiry!
We appreciate your loyalty and the opportunity to inform our readers about a 30-year old case that’s unique to the huge staffing industry. It’s so timely today, as temping becomes a way of life for so many.
It’s the 1983 U.S. Court of Appeals (11th Circuit) decision in Consultants & Designers, Inc. v. Butler Services Group, Inc., 720 F2d 1553.
When the Consultants case was decided, it sent shock waves throughout the temporary service industry. That was because it was one of those rare instances where a federal appellate court basically “made law” without any legal precedent – either in prior reported cases or in any statute on the books.
Court Upholds 90 Day Restriction
Although the Consultants case involved technical legal and procedural issues, the breakthrough was when the court upheld Butler’s 90-day contractual restriction against temps (aka “job shoppers”) working for its competitors.
For the benefit of our newer Fordyce family members, “job shops” existed in the days when space exploration was big business. The term “job shop” meant everything from a technical temp service dispatching employees on site (like Butler and Consultants for work on a nuclear reactor), to brick-and-mortar subcontractors who worked off-site on a “project basis.” The latter often designed and even manufactured prototypes of highly-sophisticated rocket ship parts and the like.
Butler had an employment agreement with its temps that read in part:
Employees shall not accept employment directly or indirectly by client for a period of ninety (90) days following the completion of assignments to said client and/or assignment to the work of said client performed, on employer’s premises out [I think this was supposed to be “or”] in the field without the written consent of employer.
A JOC reply is not the place for me to give an analysis of the complex employment cases, statutes and administrative rulings that exist at the federal level and in our 50 states. However, a fundamental legal principle is that employment is at will.
This at-will employment can be changed by an employment agreement, but these contracts are strictly construed, and are often disfavored by the courts when they contain restrictive covenants (as here) against competition. They also typically involve an employment term for a certain period of time, a separate consideration of money or some other incentive, and a complicated recital of rights and obligations for key employees.
Continued temp assignments are too chancy for the service to commit to a term, the temp’s services are subject to the whims of the client, and temps want the flexibility of bailing at any time. That’s why traditional employment agreements are inappropriate to bind temps.
Temp Service Has A Protectable Interest
So essentially the Court of Appeals carved out an exception to the general rule of denying enforcement of restrictive covenants.
The court found that the temp service had a protectable interest in its employees, stating:
While in a technical sense the relationship between Butler and its job-shoppers was employer-employee . . . [i]t is much more revealing to recognize Butler’s role as the much maligned but time-honored middleman.
Here’s how we modified that Consultants provision:
(Name of employee) agrees not to accept employment with (name of temporary service client(, or through any other person or entity for (name of temporary service client), for 90 days following the termination of his employment with (name of your business).
There is no way of knowing whether the original provision or our update will be enforced by a federal or state court somewhere. Even if it is (or isn’t), the vast majority of these kinds of cases (and the allied temp-napping cases where the competitor induces the client or temp to participate in the caper) are not reported. That means they are not published in official legal references, and therefore can’t be cited as authority. They may be interesting, but are of no use even as persuasive authority, let alone precedent, to budge a judge.
One of the few reported decisions is the 2001 Oregon Court of Appeals case of Volt Services Group v. Adecco Employment Service, Inc., 35 P3rd 329. In that case, the court considered the Consultants case and found that temps were the commodity of the service. An opposite New Hampshire Supreme Court reported decision from the year before was also considered (National Employment Service Corp. v. Olsten Staffing Service, Inc., 761 A2d 401).
Even if you can’t remember the citation, please memorize the saying Volt gave me on a T-shirt displayed in my office for decades:
LIFE IS A TEMPORARY ASSIGNMENT.
So true these days.
May our JOC readers worldwide help many with temp assignments — and may they keep the temps as employees.
Thanks for asking, Conrad!
Jeff