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How to Keep Quality Staff: Poaching Penalty Contract Clause for Clients

By Wayan Vota on September 29, 2010

Good help is hard to find, eh? Its even harder to keep. One issue we’ve seen occurring on big ICT4D deployments is clients poaching the best staff from the ICT company that’s working on the project.

Now be it far from us to stop people from changing jobs – we should all have freedom of employment. But at the same time, ICT companies who have invested in their staff should have some recourse when a client tries to hire off its best workers. That’s why we’ve added a “poaching penalty” in our Sample Master Services Contract for IT Services:

  1. LIQUIDATED DAMAGES FOR HIRING MY COMPANY EMPLOYEES:
    If, during the term of this Agreement or for twelve months thereafter, Client directly or indirectly retains the services (whether as an employee, independent contractor or otherwise) of any employee of MY COMPANY (or ex-employee within three months of the employee’s termination from MY COMPANY) who has provided services to Client on behalf of MY COMPANY, Client agrees that MY COMPANY will be damaged, but that the amount of this damage will be difficult to determine.Accordingly, Client agrees that for each such MY COMPANY employee hired by Client, Client will pay MY COMPANY Twenty-five Thousand Dollars ($25,000) as liquidated damages. Notwithstanding the foregoing, for the purposes of this section 5, “employee of MY COMPANY” shall include only employees of MY COMPANY who provide services to MY COMPANY customers and shall not include accountants, attorneys or other independent contractors of MY COMPANY who provide services to MY COMPANY itself.

Enforcing this penalty with a key client would be difficult, but by having it in the original contract, you do give the client warning that you value your staff, as your staff.

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Written by
Wayan Vota co-founded ICTworks and is the Digital Health Director at IntraHealth International. He also co-founded Technology Salon, MERL Tech, ICTforAg, ICT4Djobs, ICT4Drinks, JadedAid, Kurante, OLPC News and a few other things. Opinions expressed here are his own and do not reflect the position of IntraHealth International or other ICTWorks sponsors.
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3 Comments to “How to Keep Quality Staff: Poaching Penalty Contract Clause for Clients”

  1. Kevin Donovan says:

    Noncompetes Are The DRM Of Human Capital

    In order to understand how this makes sense, just think of noncompetes as the “DRM” of human capital. Just as DRM tries to restrict the spread of content, a noncompete seeks to restrict the spread of a human’s ideas for a particular industry within the labor arena. Both concepts are based on the faulty assumption that doing so “protects” the original creator or company — but in both cases this is incorrect. What it actually does is set up an artificial barrier, limiting the overall potential of a market. It may not be easy to see that from the position of the content creator or company management (or investors). It’s natural to want to “protect,” but it’s actually quite damaging.

    http://www.techdirt.com/articles/20071204/005038.shtml

  2. Wayan Vota says:

    I too have issue with noncompetitive agreements that would stop people from switching between competitors – we should all have freedom of movement within our industry.

    This Poaching Penalty isn’t a noncompete though. It doesn’t stop ICT experts from changing between jobs. It stops clients from hiring a company’s ICT staff instead of hiring the company. That’s a subtle but real difference where salaries are low compared to contract amounts (like in Africa).

  3. Anonymous says:

    Master service agreement
    Is there is any clause in MSA (master service agreement) regarding non-solicitation /non competent