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36
HUMAN RESOURCES

Contracting To Prevent Loss

A CEO asks new employees to sign a contract saying that they'll pay the going rate for clients that they steal.
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OCTOBER 1988

If you run a professional services business, you're probably not surprised when employees leave and take their -- and your -- clients with them. Happens all the time, but it's troublesome nonetheless. Norman Ochelski, who operates his own CPA firm in Detroit, has a solution: require new hires to sign a contract stating they will pay the going market rate for clients that they swipe.

"I can't force a client to stay with my company when one of my CPAs moves on; after all, client relationships can get pretty close. But I do get fair payment when it happens," Ochelski says. He typically receives one and a quarter times the account's yearly gross billings when a CPA takes the business out the door. "Usually it's between one and two times depending on where the business is located. It's an agreement that stands up in court because the employer would be incurring a financial hardship -- it's based on what the practice would sell for [on the open market]."

Ochelski has never been taken to court on the agreement, but a friend has, and he won his case. "It's not as common as it should be, given how fair and easy to implement it is. This way there are no hard feelings when we part company."

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Last updated: Oct 1, 1988




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