A California Court of Appeals recently upheld a staffing firm’s conversion fee provision with its client and awarded the firm $308,626 after the client caused 33 workers to convert to another staffing firm. The provision provided that if the client directly hired a temporary worker or caused the worker to transfer to another staffing firm, the client would pay in accordance with a fee schedule. After the client converted the temporary workers and failed to pay the conversion fee, the staffing firm filed a breach of contract action.

The court held that the provision was a reasonable contractual restraint on business operations, and not a noncompete agreement restricting the right of the staffing firms’ workers to engage in an occupation of their choosing. The court also concluded that the fee was not an unfair penalty because the client could have terminated the staffing agreement, hired a different staffing firm, and incurred no conversion fee liability. Instead, it chose to convert the staffing firm’s temporary workers to another firm; thus, it could not avoid the consequences of its decision by claiming the fee it agreed to was actually a penalty.

To read the case, see Howroyd-Wright Employment Agency Inc. v. Springboard Solutions LLC, 2021 WL 4145092 (Cal. App. 4th Sept. 13, 2021). Note that this case is currently unpublished and not yet certified for publication.