Outsourcing Contracts:  Two Key Terms You Need to Know

When entering into outsourcing contracts for back-office services, there are two key contractual terms that continue to have prevalence in the industry involving obligations of the third party outsourcing employees: “non-solicitation” and “severance.”

Many third parties prefer the inclusion of a non-solicitation clause in outsourcing contracts, where a firm cannot hire or induce another third party to hire any employee placed at its site by the current provider for the duration of the contract (and for some time period beyond contract expiration).  For example:

  • The firm cannot hire a copy operator during the outsourced copy center agreement and for six months after the contract period has expired.
  • The firm cannot induce a new outsourcing third party provider to hire that individual to continue to provide services at the Firm location.
  • The argument for such a clause by the outsourcing provider is that the organization has a considerable investment of time and resources in the hiring and training of such an individual (and thus needs to protect that investment).

Mattern & Associates continues to negotiate this clause out of contracts on behalf of its clients successfully.  This provides flexibility to the firm as it invests in long term resources.  That is, part of the overhead that a client pays to an outsourcing provider is to cover the training and hiring expenses of the outsourced employees.  If the third party provider has maintained a healthy working relationship with its employee, it has every right and opportunity to place that individual at another location at the end of the outsourcing agreement.  However, if the employee desires to stay at the firm location instead, the firm should look to minimize any financial obligation for accommodating that individual’s employment wishes.

Another key term impacting outsourced employees at the end of a contract involves severance.  Similar to non-solicitation, Mattern negotiates the removal of this clause to the benefit of the firm.  Firms outsource back-office services to gain the advantage of trained and motivated employees, without the burden of hiring and staffing.  However, these employees are the responsibility of the outsourced provider, and, therefore, the firm should not be obligated for the severance of another party’s employees.

Mattern & Associates assists law firms in the process of selecting a service provider, negotiating the pricing and contractual terms, and monitoring compliance over the life of the term.  If you are considering a Managed Services contract, reach out to Mattern & Associates to see how their expertise can help you.