Talent Development Centre

Independent Contractors and the Non-Compete Clause

At various times in the Talent Development Centre, we explain different aspects of the staffing industry, how they work and why it is that way. The non-compete clause is another aspect that should not be taken lightly by independent contractors.

In Canada an independent contractor is a business entity. When we place a contractor, Eagle enters into a business-to-business relationship with the independent contractor and similarly, we enter into a business-to-business relationship with our client. Thus a three way relationship is formed, which is just one of the ways to ensure that the agreementemployer/employee issues surrounding independent contractors are kept clean.

It is a standard in our industry for contracts to include non-compete clauses. 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. An unethical competitor agency 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.

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 are 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.

More importantly, independent contractors who do not to maintain a code of ethics and fail to live up to their contractual obligations are quickly blacklisted by an agency and can even gain a bad reputation throughout the industry.

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