Understanding Your Staffing Firm’s Non-Compete Agreement

Mike Brew

Last time updated: December 17, 2024

If you’re a staffing professional, it’s likely that at one time or another you’ve considered leaving your company to start your own staffing business. You work hard for a paycheck but know that there is no assurance of a big future or financial security. You’re excited to explore becoming an entrepreneur but your non-compete and non-solicitation clauses loom.

Well, maybe not so much. Of course we recommend that you seek legal advice or counsel from a law firm and that you respect any agreements you’ve made…however you may find that your non-compete doesn’t hold back your entrepreneurial dream.

What is a Non-Compete or Non- Solicitation Agreement?

A non-compete, or solicitation agreement, is a legally binding employment contract under which an employee agrees to not enter into or start a similar profession or trade in competition against their employer or former employer.

When an employee signs a non-compete they are agreeing to not directly or indirectly solicit former clients or reveal any trade secrets learned during employment for a specified period of time.

The use of non-solicitation agreements is not a new practice, however, very few employees understand the implications of non-compete clauses until they leave a company.

Here are five things to know on how to start a staffing agency with a non-compete:

1. YOUR STATE MATTERS

Many states, regardless of a document that prohibits your professional activities, may not enforce non-competes or competition agreements. For example, many states have statutes or court rulings that determine what constitutes a reasonable amount of time for a non-compete and may not enforce those whose duration is considered unreasonable. Alternatively, if your company does not have a “legitimate business interest” for the non-compete, a court may not enforce it. Such interests include protection of trade secrets or relationships with prospective or existing customers.

2. GEOGRAPHICAL AREA

The majority of non-competes have geographical restrictions that may or may not be an issue. Courts have always tried to strike a balance between the interests of the former employer and the former employee or independent contractor (you). Generally, courts look to whether the restricted area is coextensive with the area in which the employer is doing business.

3. YOUR CUSTOMERS

Most companies that require a non-compete are looking to prevent the loss of customers and other employees. Some staffing entrepreneurs have had success simply avoiding their old customers and coworkers until the agreement expires.

4. NEGOTIATE

If you are coming from an independent company, the owner (an entrepreneur) may understand your desire to be an entrepreneur as well. Many times, staffing professionals have reached their peak both professionally and financially and your company simply does not possess the resources to retain you. Communicate with your boss and you may be surprised.

3. SEVERANCE PAY

This is tied into negotiating. Perhaps your company is having financial trouble or having tax or insurance troubles. If you are willing to forego severance pay it may buy you out of your non-compete. You may be doing your boss a favor! Most staffing professionals who become owners are earning more in their second or third year than they did in their former position, sometimes sooner. Severance pay may be tempting but could cost you more in the long term.

For more resources on starting a staffing agency visit the Startup Spring section of our website.