Non-Compete Clause for a W2 Contract Worker

[sane]

My question involves independent contractors in the state of: New York

Hello ,
I have been working as W2 consultant through a staffing agency for 14 months now. I just found out the staffing agency has been cutting too much from my salary (The client pays them ~ $40 per hour and I get only $26 but I'm not sure if this is the normal price?) so I decided to work as independent contractor directly for the client.

However, my contract contains the following term: "Consultant will not solicit or accept employment (either directly as an employee, or indirectly as a contractor, independent contractor, or an employee of another vendor) from any Client at which Consultant provided services for X. This restriction will be binding upon the Consultant for one year subsequent to Consultant's termination of services for Client, whether such termination was voluntary or involuntary , with or without cause"

Also, the contract specifies the "Initial Term" from 11/5/08 to 3/31/09 and then it adds "after initial term has elapsed Consultant shall continue until completion of the project."

What are my options and what are the risks of working directly as independent and is it true that W2 contracts should never exceed 12 months according to the law?

Thank you!

[jk]

you apparently do not understand why you are getting $26/hour and the staffing company is getting $14/ hour more than that.

It is none of your business. You agreed to work for $26/hr and that is what you are getting paid. Then you have to realize the staffing company is paying an employers share of taxes plus they pay into unemployment insurance plus they might offer med coverage, vacation, or paid time off. Those are all costs that they do not get to keep.


then as a business, would you not expect them to make something from finding you the job, maintaining records concerning you, paying all their bills associated with you and hopefully making some amount of profit as well?

anyway, they utilize these non-competes for exactly the reason you present. They did the work of finding the job, hooking you up with them and now you want to run off.

Sorry, it doesn't work that way.

[sane]

jk, I don't know what you do and how you make your living, but I can tell from your reply that you are not only a biased toward companies that make money off others sweat but you're a rude person who does not deserve to be dignified with an answer, but I'm going to answer so if someone else has some real advice to give s/he can take my following points in consideration.

First of all, I've been working on W2 contract for 14 months (read: FOURTEEN - more than a year), now, speaking of "understanding", you don't seem to understand that W2 contracts are supposed to be limited to a short period (6 months, maybe 12 but not FOURTEEN). If I had known that they can unilaterally extend my contract indefinitely, I wouldn't have made such commitment with such salary.

Secondly, I've been working with no benefits whatsoever (why did you even assume I was getting medical coverage, vacation or paid time off?? where did I say that?) for more than a year, and the staffing company has been unilaterally extending my contract (originally intended for 3 months) based on a ridiculous clause with such a broad meaning.

Thirdly, doing a simple math, you will find that they made almost $23,000 off me, (assuming I've been working only 7 hours a day, which is not true for many months in which I had to spend days and nights in office working on complex project). "Run off"? They made $23,000 off of me and all they did is arranging for an interview and withholding my taxes and you say I'm "running off" ?

You apparently one of those lazy people who make money from others while he sits on a couch, which is why probably you took my question personally, but you were right about one thing in your post signature : "You might even want to ignore my advice.", that's exactly what I'm going to do. Next time, if you don't have a real meaningful advice, stay out of my threads please.

Anyways, I had sent my question to a paid lawyer online and I got this response from him:
"Yes they cannot extend it beyond the original one year term. You can work for the employer after you leave them. In our experience with staffing agencies they threaten action and complain but in my employment practice Ameritemps and some of the smaller agencies have never once filed suit against one of their temps for violation of the non compete clause. They have already gone beyond the time and they cannot unilaterally extend it forever. You could even argue that the project has finished and you are free to work for the employer without penalty."

I just wanted another real opinion from a public forum to confirm, but like what they say you get what you pay for....

[jk]

i gave you the answer. don't read the rest of you don't want. Heck, I don't really care if you read any of it. It doesn't change the answer.

(why did you even assume I was getting medical coverage, vacation or paid time off??

I didn't. I said if applicable. Do you have a reading comprehension problem?

.

Then you have to realize the staffing company is paying an employers share of taxes plus they pay into unemployment insurance plus they might offer med coverage, vacation, or paid time off.

go ahead and do what you want. Just don't cry when the staffing company calls up the employer and threatens to sue them due to the contract they have with them as well. You will then be out of a job from both places.

hopefully you can contract out to other businesses. The staffing companies know the game and they protect themselves on both sides of the business.

[sane]

Actually, they cannot sue the employer, I had discussed that with their legal department.

[Mr. Knowitall]

There are two different concepts at play here - the notion of a "W2 Contractor" who works directly for the employer, and that of a worker who is employed by a contracting agency and assigned to work for one of the contracting agency's clients. In the former situation you're employed by the company for which you're performing services, they withhold taxes in a manner akin to what they would do if you were an employee, but they otherwise treat you like an independent contractor and issue you a 1099 at the end of the year. In the latter context you're an employee of the agency that hired you, not of the company for which you're performing services. I suppose it's possible that you're in a hybrid situation - that the company that hires and pays you did so on the basis of a W2 contract, and that you received a 1099 at the start of 2009 (not a W2) and just got (or are about to get) another for 2010, but I suspect you're actually their employee. Could you clarify?

Here's the thing: If you're working for the contracting agency, you don't get to redefine the concept of a "project" based upon what you're doing for their client. Odds are very high that your contract with the agency defines a project as any work you do during your assignment to that particular client. The project is the assignment. Is that in fact what your contract says? If so, as long as you continue to be assigned to the clenient, it's all part of the same project.

Nobody can "unilaterally extend" your contract - if you don't want to continue working under the contract you're free to quit. If you continue to work under a contract beyond the initially projected completion date, you've consented to that - and the extension is by virtue of your consent. If better jobs were on the horizon throughout the past year, nothing prevented you from quitting to take one.

Here's the deal: when an agency provides employees to a company, both the employee and the agency sign contracts. The specifics can vary by state, but the employee typically agrees that he can't work for the client to which he's assigned for a period of time after the contract ends. The employer agrees not to recruit workers that are sent to them by the agency, but that they can hire an assigned worker if they pay the agency a fee. If the fee is paid, the employee is released from the noncompete and everybody's happy. If it's not paid, the agency can do a number of things including declaring a breach of contract and pulling its other workers off off the client's site, suing for damages, attempting to bill for the amount due, suing the employee under the noncompete and seeking an injunction against their working for the client.... Their approach is going to depend upon the full context of the case. Your notion that the agency can't sue their client for breaching its contract, or for enticing an employee to breach is contract, is not correct.

In terms of this,

"Yes they cannot extend it beyond the original one year term. You can work for the employer after you leave them. In our experience with staffing agencies they threaten action and complain but in my employment practice Ameritemps and some of the smaller agencies have never once filed suit against one of their temps for violation of the non compete clause. They have already gone beyond the time and they cannot unilaterally extend it forever. You could even argue that the project has finished and you are free to work for the employer without penalty."

The first alarm bell that this isn't great advice somes in the first sentence. The initial term was not one year, but was just short of five months. Second, yes, they can extend beyond that initial term per the language you've quoted.

The second sentence is problematic - it boils down to, "They could sue, but in my experience that's unlikely." That's anything but telling you that they don't have a binding contract or that they can't sue - she's telling you to roll the dice.

The third sentence is as problematic as the first. They've already gone beyond what "time"? She hasn't read the full contract, and you didn't give us the opportunity either, but from what you've posted the "time" appears to be the duration of your assignment to the client firm. If there's language in the contract that clarifies what "completion of the project" means, by all means share it. Or hire a lawyer to actually review the full contract.

The notion of "they cannot unilaterally extend it forever" is also, as I previously indicated, silly. You are not a slave - if you don't want to extend your work under the contract, you can quit. If you choose to continue working, you're consenting to the extension.

The last sentence seems pretty rash - it assumes that you or the client get to define "the project". Again, read your contract and you will likely find that is not the case - you will likely find that you are assigned for the duration of "the project" and that any declaration that "the project" has ended would conclude the contract and require the client to lease you through a new contract.

So, what does the contract actually say?

[pm6]

I have worked as a contractor in the IT field for 14 years now, in a variety of roles, and have even been a permanent employee of a staffing agency for a while. So, I feel qualified to comment on this topic, and I have great interest in it. For purposes of this discussion, I'll speak as if the contractor is being paid as a W-2 employee of the staffing firm.

There are industry norms for the spread between what the contractor is paid and what the staffing agency bills. The agency has to pay sales commission, pay administrative staff salaries, carry liability insurance, and pay 1/2 of the Social Security and Medicare tax. They probably won't cover any medical insurance or offer any paid time off unless the contractor accepts a salaried position.

Here's the problem - the staffing agency does not usually reveal the billing rate to the contractor, and is free to make the spread as large as they can. What't the problem here? It is twofold - if either the contractor or the client finds out the spread is unreasonably large, they will feel cheated; either underpaid or overcharged. It can't be a good thing for the staffing company, but some are greedy and more interested in todays paycheck than in building long term relationships with contractors or clients.

Also, the need to pay any sales commission diminishes as time goes by. A salesman makes a sale and the commission is based on a 3 to 6 month term. If the contractor stays a long time (more than 6 months) the staffing firm pockets even more profit because they are no longer paying a perhaps 20% commission rate on the spread.

About non-competes - yes, all the staffing companies have them, and no, it is very, very rare that one will be enforced. First, it depends on the location if they are even enforceable. If overly broad (e.g. you cannot work for any company in an industry for a year) they are not enforceable. Even when they are ironclad and valid in court, a staffing company will be VERY hesitant to enforce it.

Why? One word: reputation. If they sue you, they implicitly sue the client. They will never do business with that client again, ever. Word could spread in the business community that staffing agency X sued a client's contractor even after the client paid them a generous spread for over a year. Result? Staffing agency X has a much harder time finding business.

My advice is to be upfront with the client you are working for, and have the client express an interest in defending you from any ill-advised legal action the staffing agency may consider. It would take a very greedy agency owner and a very foolhardy business mind to pursue it. Good luck to you!

[cbg]

Well, to start out with, I don't know what you think you should be receiving but at no time does the employee receive the whole amount that the client pays. Where do you think the money to pay for your benefits, your unemployment, your workers comp, pay the recruiters, the light bill, the rent on the office, comes from?

The clause in the contract you quote is standard. I have been working with staffing agencies from both sides of the desk for twenty-some years now and I have yet to see a contract without it. It is almost always legally binding on all parties and the only reason I'm not saying always is that I do not believe in superlatives. The staffing agency could, if they chose to, excuse you from it. They have no incentive to do so and a very great incentive not to do so. I wouldn't count on their cooperating with you.

They are not required to renegotiate the contract with you. You are free to ask; they are free to decline. I have never heard of law that limits contracts to 12 months. There is definitely no such law in my state.

Your options are to wait a year before going to work for the client company, or violating your contract and praying very hard that the staffing agency does not sue you because if they do, they will win.

[sane]

cbg, Thank you very much for your response.
Are you saying I'm completely under their control and they can keep extending my contract as long as they want? Does not that defy the purpose of a consultant job which is supposed to be a temporary job? Is that a loophole to employ permanent employees without giving them any benefits?

If you mean by benefits health insurance or paid vacations, then like I said I get nothing of that sort. The only thing this staffing agency does for me, is withholding my tax and deposit my salary to my bank account and when I said zero benefits I meant that literally..

Also, I did not say they are not entitled to get some cut from my work salary but I'm saying their commission is too much for what they're doing for me (they arranged for my interview, withhold my taxes and that's it. They didn't even offer reduced health insurance prices).

Also could you please clarify if you're an attorney or not?

Thank you again!

[sane]

jk, it is not that I did not "like" your answer. You gave me a lecture of why I should appreciate the staffing agency which makes a lot of money off my hard work without giving me any benefits in return.

I wanted to know my options and risks not a speech of how I should just accept in what appears to me as abusing the law to make their lives easier but mine harder. On other hand, cbg did actually give me options (waiting for a year) and risks (losing the lawsuit). I still do not think that's fair for me, but if that's the law, then that's the law. (not to say I'm convinced by cbg's answer).