Avoid this Common But Disastrous Mistake in Staffing Agency Agreements

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A client once asked me to review the Employment Agreement of a candidate they were considering hiring. The candidate had recently been terminated but his Employment Agreement contained a 12-month non-compete, and my client’s job offer seemed pretty clearly to be for a competing job.

But the terminating employer made once huge mistake. When it meant to terminate employment, instead it terminated the agreement … and with it, the non-compete.  Oops!

I see the same mistake in Staffing Agreements and Professional Services Agreements all the time.

These agreement are usually intended to serve as Master Service Agreements (MSA), with additional work orders to govern the actual services to be provided. These MSAs contain very important clauses that are intended to survive, even after the services have stopped. Examples of clauses intended to survive the termination of services include indemnification, insurance coverage, preservation of confidential information, and right to audit.

The mistake I see over and over, however, is the inclusion of a termination clause that allows for termination of the agreement, not merely termination of services.

When you no longer want to do business with the labor supplier, you want to terminate the services, not the agreement.

This problem can be avoided with a carefully drafted survivability section that lists the sections of the agreement that survive termination. But why terminate the agreement at all, when that’s not really what you intend?

Last week I reviewed a staffing services agreement that contained this dreaded defect. It listed conditions for terminating the agreement (“without cause” was enough), but failed to include a survivability clause. Termination would have meant loss of the indemnification protection, insurance coverages, audit rights, and preservation of confidential information. Noooooo!

Here are two ways to avoid this disaster.  Either will work, or try both:

  1. Include a survivability clause that specifically lists the sections that survive termination of the agreement.
  2. Include a termination section that says the services can be terminated at any time, but the agreement cannot be terminated except (a) in a writing (b) that is signed by the highest officer of each company (c) that includes text which specifically states the parties intend to terminate the indemnification, insurance, audit, and confidentiality clauses. Any writing or agreement that lacks this specific language shall be interpreted as a termination of services but not a termination of the agreement.

I like #2 as a backstop to #1 since it prevents an accidental termination of the whole agreement by someone who does not understand the legal problems that would be created by terminating the agreement.

The biggest legal problems are usually created by accident. Try to avoid this common mistake.