Part 1: Combating poaching of your work force

Merchant and pirate were, for a long period, one and the same person. Even today, mercantile morality is really nothing but a refinement of piratical morality.

– Friedrich Nietzche, German scholar and philosopher (1844-1900)

Call centers and rest of the business process outsourcing (BPO) industry are one of the most labor-intensive sectors in the business world which, based on estimates, currently has a workforce of around 450,000 employees and still continues to grow rapidly. Being an industry that relies heavily on labor supply for continued growth, the attrition rate, which has averaged around 19%, is of great concern.

While high employee attrition rate is prevalent in call centers and the rest of the BPO industry, understanding its causes may be important in being able to find effective solutions to address this problem.

Attrition, or the loss of personnel, is due to various causes. One major reason is the poaching of talent among competitors. Work force piracy may be viewed as an act of war by one competitor against another since it effectively involves poaching of talent with existing employment contracts and on which so much time and money has been invested on orientation and training.

There are many ways to combat piracy of workers, one of which is the inclusion of a non-compete clause (NCC) with provisions for liquidated damages in employment contracts.

An NCC is a provision in employment contracts under which an employee commits not to pursue a similar profession or trade in competition against the employer. It is premised on the possibility that upon termination of service or resignation, an employee might begin working for a competitor or start a rival business and gain competitive advantage by abusing confidential information about a former employer’s operations or trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products and marketing plans.

Liquidated damages, on the other hand, are those agreed upon by the parties to a contract, to be paid in case of a breach thereof. This may cover the loss of income, reimbursement of training costs and other personnel expenses incurred by the employer when its employee suddenly jumps ship.

Although a restrictive employment contract may not be an efficient tool to lure the best and the brightest people, it may nonetheless serve as a deterrent to minimize, if not prevent, the poaching of talents within the industry.

I believe that including a NCC in the employment contract may still be a practical approach, provided the terms and conditions are reasonable and not considered in “restraint of trade.”

Restraint of trade or occupation consists of acts, contracts, agreements or combinations which restrict competition or obstruct due course of trade.

The Supreme Court has ruled that the question of reasonableness of a restraint requires a thorough consideration of surrounding circumstances, including the subject matter of the contract, the purpose to be served, the determination of the parties, the extent of the restraint and the specialization of the business of the employer.

The court has to consider whether its enforcement will be injurious to the public or cause undue hardship to the employee, and whether the restraint imposed is greater than necessary to protect the employer. [Rolando C. Rivera vs. Solidbank Corp., G.R. No. 163269. April 19, 2006 citing Smithereen Co. vs. Renfroe, 59 N.E.2d 545, 549 (1945).]

The Supreme Court, in one case, ruled that an NCC or a non-involvement clause that committed a senior assistant vice-president and territorial operations head in charge of Hong Kong and Southeast Asian operations of a pre-need firm not to engage directly or indirectly, for two years, in the same business of the employer was legal, reasonable and not in restraint of trade (Daisy B. Tsiu vs. Platinum Plans Phil., Inc., G.R. No. 163512. Feb. 28, 2007).

In another case, the Supreme Court rightfully held that there is nothing invalid or contrary to public policy in the objectives sought to be attained in an NCC or the exclusivity clause in prohibiting sales supervisors from selling products other than those manufactured by the employer. Such prohibition is neither directed to eliminate competition nor block new entrants to the market. The reason for such exclusion is to safeguard the network that the employer had cultivated through the years. It is only a means by which the employer is able to protect its investment. (Avon Cosmetics vs. Leticia H. Luna, G.R. No. 153674. Dec. 20, 2006)

As companies do not want their key employees to turn around and work for their competitors — or to become consultants or freelancers either — it is suggested that parties concerned negotiate the terms and conditions of the NCC in specific areas like application of the restriction to specific competitors and geographic scope, reasonable duration of the restriction and limiting the application of the NCC to resignation, excluding retrenchment or termination.

Moreover, to further sweeten the pot and make the terms and conditions of the NCC acceptable to employees, certain incentives for agreeing to the clause may be given in the form of additional bonus or shorter review time for raises and promotions, or other perks and benefits, the same being a valid exercise of management rights and prerogatives.

Given the continuing rapid development and growth of the call center and the rest of the BPO business in the country, poaching of talent among competitors is a reality that cannot be totally eliminated. However, with an effective and reasonable NCC in place, the high attrition rate prevalent in this particular industry may be mitigated.

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About the Author:
Senior Software Developer, working in RayooTech software outsourcing company, website: http://www.unisoftchina.com/
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