Who owns the work product created by a contractor under a staff augmentation agreement?

Under a properly drafted staff augmentation agreement, all work product created by the contractor belongs to the client company. This is typically accomplished through a work-for-hire provision (for works that qualify as works made for hire under copyright law) combined with an IP assignment clause that transfers any remaining rights to the client. Always verify these provisions are present before the contractor starts work.

What is a non-solicitation clause in a staffing contract and is it enforceable?

A non-solicitation clause in a staffing contract typically prohibits the client from directly hiring the contractor without paying a conversion fee to the staffing firm, usually for a period of 12 to 24 months. These clauses are generally enforceable in most US states, though the fee amount and duration vary widely. Before signing, understand the conversion fee structure and negotiate the term down if it is longer than 12 months.

What background checks should I require for IT contractors?

At minimum, require criminal background checks (7 to 10 years) and employment verification for all IT contractors who will have access to your systems. For roles with access to sensitive data or financial systems, add credit checks and drug screening. Specify in the contract that the staffing firm is responsible for conducting these checks and must notify you of any adverse findings before the contractor begins work.

What notice period should a staff augmentation contract require for termination?

Standard notice periods for staff augmentation contract termination range from two to four weeks for most roles. Some contracts allow immediate termination for cause (misconduct, performance failure, confidentiality breach). Negotiate for a notice period that gives you enough time to plan a transition but does not lock you in if the placement is not working. Avoid notice periods longer than 30 days.

What liability protections should I look for in a staffing firm contract?

Look for confirmation that the staffing firm carries adequate insurance: general liability (at least $1 million per occurrence), workers' compensation, professional liability (errors and omissions), and cyber liability if contractors will access your systems. The contract should also include indemnification provisions protecting you from claims arising from the firm's employment practices - misclassification, wage violations, discrimination claims against the staffing firm.

Staff Augmentation Contracts: What to Include and What to Watch For

The Two-Contract Structure

Most staff augmentation arrangements involve two separate contracts. The first is the Master Services Agreement (MSA) or Staffing Agreement between you and the staffing firm - this governs the overall relationship, rates, liability, IP, and general terms. The second is a Statement of Work (SOW) or Work Order that activates a specific placement - this specifies the role, the candidate, the bill rate, the start date, and the expected duration.

Understanding this structure matters because the MSA is negotiated once and governs all future placements, while the SOW is placement-specific. Negotiate the MSA carefully - the terms you accept there apply to every contractor the firm places with you. The SOW is generally more straightforward, but it still needs to specify the key economic and operational terms for the individual engagement.

Note on legal advice

This guide provides general information about common contract terms in the staff augmentation market. It is not legal advice. For significant engagements, have your legal counsel review the specific contract language before signing.

Essential Terms in the Master Services Agreement

1. Intellectual Property Ownership

The single most important term in a staff augmentation MSA is who owns the work product created by contractors. The answer should be unambiguous: your organization owns all work product, inventions, code, documentation, and deliverables created by contractors while working under your engagement.

A well-drafted MSA accomplishes this through two provisions:

Work-for-hire designation: To the extent that the work qualifies as a "work made for hire" under the US Copyright Act (which applies to certain types of commissioned works), the agreement designates it as such, making the client the author for copyright purposes from the moment of creation.
IP assignment: For any work product that does not qualify as work made for hire (including most software code, which typically does not qualify under the statutory definition), the contractor and/or staffing firm assigns all intellectual property rights to the client. This should be a present-tense assignment - "hereby assigns" - not a promise to assign in the future.

Red flag: If an MSA contains language reserving rights in "pre-existing IP," "background IP," or "general methodologies" to the staffing firm or contractor, understand precisely what that covers and whether it includes any tools, libraries, or frameworks that will be embedded in your work product. Unreviewed background IP carve-outs can create unexpected constraints on your ability to use the deliverables.

2. Confidentiality and Non-Disclosure

The MSA should include mutual non-disclosure obligations. From your perspective, the key provisions are:

The staffing firm and its contractors must keep your confidential information (business plans, technical architectures, client data, personnel information) strictly confidential
Confidential information must be used only for the purpose of the engagement, not for the firm's own benefit or shared with other clients
The obligation should survive termination of the agreement for at least three to five years, or indefinitely for trade secrets
The firm must ensure that contractors sign appropriate confidentiality obligations as a condition of placement

3. Non-Solicitation of Contractors

Staffing firms universally include non-solicitation provisions prohibiting clients from directly hiring contractors placed through the firm without paying a conversion fee. This is standard and reasonable - the staffing firm invested resources in finding, screening, and placing the contractor. What to negotiate:

The fee structure: Conversion fees are typically calculated as a percentage of the contractor's first-year annual salary (commonly 15% to 25%) or as a flat fee. The percentage should be disclosed upfront, not buried in an exhibit.
The time period: Many MSAs prohibit direct hire for 12 to 24 months from the end of the engagement. Twelve months is reasonable; push back on anything longer.
What happens at the end of the contract term: Some agreements specify a lower or zero conversion fee if the placement runs to the end of its agreed term. Negotiate for a fee reduction that reflects the contractor's tenure with you.

Watch out: Indirect solicitation clauses

Some MSAs prohibit not just direct hire but also any "indirect" solicitation of the contractor - meaning you could be in breach if the contractor independently applies for a job at your company without any solicitation from you. This is overbroad and unenforceable in many states, but it creates friction. Push for language that limits the prohibition to affirmative solicitation by you, not independent applications by the contractor.

4. Background Check Requirements

Your MSA should specify the background check requirements that apply to all contractors placed through the firm. At minimum, this should include:

Criminal background check (federal and relevant state searches, typically seven to ten years)
Employment verification for all prior positions
Education verification where credentials are relevant to the role
A right to require additional checks for specific roles (credit check, drug screening) at your discretion

The agreement should specify who pays for background checks (typically the staffing firm), what happens if a contractor fails a check after starting work, and your right to remove a contractor from your premises at any time if new information comes to light.

5. Insurance Requirements

Require the staffing firm to maintain and document adequate insurance coverage throughout the engagement. Minimum requirements for IT staffing firms should include:

Commercial General Liability: at least $1 million per occurrence, $2 million aggregate
Workers' Compensation: statutory limits in all applicable states
Employer's Liability: at least $500,000 per occurrence
Professional Liability (Errors and Omissions): at least $1 million per occurrence
Cyber Liability: at least $1 million if contractors will access your systems or handle your data

Require the staffing firm to name your organization as an additional insured on the general liability and professional liability policies, and to provide certificates of insurance before the first contractor starts.

6. Employment Compliance and Indemnification

One of the primary reasons to use a staffing firm rather than hiring contractors directly is to transfer employment law risk. The MSA should reflect this: the staffing firm is the employer of record, responsible for all employment taxes, wage and hour compliance, benefits, workers' compensation, and compliance with applicable employment laws.

Critically, the firm should indemnify you for claims arising from their employment practices - including wage and hour claims, misclassification claims, discrimination claims against the firm, and any claim by a contractor that they are actually an employee of your organization rather than the staffing firm. This indemnification provision is your primary protection against co-employment risk.

7. Termination Rights

The MSA and each SOW should specify termination rights for both parties. What you need:

Termination for convenience: The right to end a placement with reasonable notice (typically two to four weeks) without cause. Avoid agreements that require 30 or more days notice or impose financial penalties for early termination without cause.
Termination for cause: The right to immediately remove a contractor and terminate the placement if the contractor engages in misconduct, breaches confidentiality, fails to meet performance standards, or poses a security risk. This right should be exercisable without notice and without liability.
Replacement obligation: If you terminate for cause, the staffing firm should be obligated to provide a replacement candidate without an additional placement fee.

Statement of Work Terms to Nail Down

Once the MSA is in place, each placement is activated by a Statement of Work or Work Order. The SOW should specify:

SOW Checklist

The contractor's name, title, and a description of the role they will fill
The start date and anticipated end date (or "until terminated by either party")
The bill rate (hourly or daily) and any overtime premium structure
Whether the engagement is remote, on-site, or hybrid, and if on-site, the location
Maximum hours per week before overtime rates apply
Billing cycle and payment terms (typically net 30 from invoice)
The specific background checks required for this placement
Any security clearances, certifications, or access credentials required
The internal manager or point of contact responsible for directing the contractor's work
Expense reimbursement policy if applicable
Specific equipment and access the client will provide versus what the contractor provides

Common Contract Red Flags

After reviewing many staffing agreements, certain provisions consistently warrant pushback:

Automatic renewal clauses

Some MSAs include automatic renewal provisions that extend the agreement for another year unless you provide written notice of non-renewal 60 or 90 days before the anniversary date. If you miss the window, you are locked in for another year under potentially unfavorable terms. Add a calendar reminder the moment you sign an agreement with this provision, or negotiate to remove the auto-renewal clause entirely.

Unilateral rate change rights

Watch for provisions that allow the staffing firm to increase rates with 30 days notice, or that tie rates to automatic escalation formulas you cannot easily verify. Your preferred structure is rates locked for the initial term of each SOW, with any increases requiring your written consent before they take effect.

Broad liability limitations that protect only the firm

Liability limitation clauses are standard and generally reasonable - limiting each party's liability to some multiple of fees paid over a prior period. But watch for asymmetric limitations: a cap on the staffing firm's liability for IP infringement claims or data breaches that does not include a corresponding cap on your liability to the firm. Liability caps should be mutual.

Assignment without consent

Some MSAs allow the staffing firm to assign the agreement without your consent - meaning if the firm is acquired, your contractor relationships (and your confidential information) could transfer to a new owner you never vetted. Require your written consent for any assignment of the agreement.

Excessive cure periods for contractor performance failures

If a contractor is not performing or has engaged in misconduct, you need to be able to act quickly. Some agreements require you to provide written notice of a contractor's performance issues and allow 30 days for the firm to "cure" the problem before you can terminate. For IT security issues or serious misconduct, 30 days is far too long. Negotiate for immediate termination rights for cause, with notice and cure periods applying only to contractual disputes with the firm itself (like billing disputes).

Managing the Contract Relationship Ongoing

A signed contract is the beginning, not the end, of a well-managed staffing relationship. A few operational practices that reduce contract risk:

Do not co-employ

The most significant legal risk in staff augmentation is co-employment - the contractor or a regulatory agency concluding that your organization is actually the employer rather than the staffing firm. Co-employment risk increases when you provide contractors with the same benefits as employees, give them annual reviews using your internal HR processes, or allow them to work indefinitely without any break. Work with your legal counsel to understand the appropriate limits on how you interact with augmented staff.

Track all contractors and their contract terms

Maintain a register of all active contractor placements with their bill rates, start dates, end dates, and the staffing firm responsible. Contractors whose contract end dates are allowed to drift without formal extension create ambiguity about the terms of the ongoing relationship and can create co-employment arguments. Every active placement should have a current, signed SOW on file.

Conduct rate benchmarks annually

Market rates for IT contractors fluctuate. If you have long-running contractor relationships, benchmark the bill rates annually against market data. Staffing firms that have not been asked about rates in two years often have room to negotiate, and you may be paying above-market rates for contractors whose market value has changed.