Most Staffing Industry Non-Compete Agreements Likely Unenforceable

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Over the past several months, I have come across a number of non-compete disputes in the staffing or recruiting industry.  I have received calls from people involved in such disputes; resolved one such dispute out of court and read about many other staffing/non-compete disputes throughout the country.

Most of these cases involve the following fact pattern:  An account manager or recruiter – call him Jim – works for Staffing Company A.  He develops new accounts via cold-calling and networking, but Staffing Company A also gives him certain accounts.  Let’s say two of his biggest accounts are Charter Communications and Hospital Corporation of America.  Jim leaves Staffing Company A and goes to Staffing Company B.  He immediately gets to work trying to staff opportunities at both Charter and HCA.  Staffing Company A sues because Jim had a non-compete and non-solicitation agreement.  Staffing Company A claims that the non-compete agreement is justified because (1) Jim had access to confidential information regarding accounts, positions, etc and (2) the company paid for Jim to develop relationships with those customers and now Jim is trying to steal those customers.

I don’t buy it.  A recent case out of federal court in Missouri had this exact fact pattern (albeit different names).  The plaintiff sued on the same theory outlined above.  And the judge rejected it out of hand.  Even though non-compete law varies significantly from state to state, the same result could be reached under Florida law.

First, non-compete agreements can only be enforced where it is necessary to protect a legitimate business interest.  In the employment context, that most often means two things (1) confidential information or (2) customer relationships.  But in the staffing industry non-compete context, those interests usually do not exist.

First, let’s address confidential information:  In the Missouri case, the plaintiff claimed that the confidential information related to customers.  It included customer contact information, names of hiring managers, organizational charts.  In general, all of this information is publicly available.  Rival companies can gather this information via LinkedIn and other publicly accessible websites, or, through subscription services where they can buy this information.  Bottom line: the information is not confidential and cannot be used to support a non-compete agreement.

Next, let’s look at the customer issue:  In the staffing context, we generally are not dealing with exclusive relationships.  Yes, there are some instances in which an executive search agency is retained on an exclusive basis to fill a very high-level position (i.e. CFO, college president, etc).  That is an entirely different ballgame, and in that context a non-compete agreement may very well be enforceable.  But outside of that context, a staffing industry non-compete agreement probably should not be enforced.  Consider the following:  The customers in this hypothetical are Charter and HCA.  Both of these companies are large, national, multi-billion dollar, publicly traded companies.  They have hundreds of positions to fill.  They have dozens of hiring managers.  They work with numerous staffing agencies to fill open positions.

Again, drawing from the recent case in Missouri:  The record showed that Charter would email an open position to 20 or more staffing companies at the same time.  In essence, the customer is saying, “Hey all of you staffing companies:  Here is what we need.  Go compete and get me candidates.  Whoever brings us the best candidate wins.”

This fact pattern demonstrates (1) a lack of any exclusive relationship (2) lack of any long-term or guaranteed contract (3) fierce competition and (4) “purchasing” decision based not on a relationship with the vendor but on the vendor’s ability to deliver the best candidate.

Even under Florida law – which overwhelmingly favors aggressive enforcement of non-compete agreements – a non-compete agreement on these facts should not be enforceable.  There small but powerful body of Florida case law that would support an aggressive defense to any claim based on similar facts.

One caveat:  As noted above, there are some exceptions.  Staffing agency non-compete agreements may be enforceable in the context of an exclusive placement contract.  Likewise, a staffing agency non-compete agreement might be enforceable if we aren’t dealing with a recruiter and – instead – are dealing with a high-ranking corporate official.  For instance, suppose the president of large staffing company jumps ship.  Then, there would be a stronger chance of courts enforcing the non-compete agreement (likely to protect confidential corporate information, e.g., strategic plans, financial data, etc).

Bottom line:  In most instances, you can mount a strong defense to staffing agency non-compete agreements — even under Florida law.

Jonathan Pollard is a trial lawyer and litigator based on Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims.  Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

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