MSP Contract Red Flags: The Complete Checklist
Your MSP contract is the single most important document in your employment relationship. This checklist breaks down every problematic clause you'll encounter, what it means legally, and how to negotiate.
1. Restraint of Trade Clauses
Non-Compete
Red flag wording:
"For a period of 12 months following termination, the Employee shall not engage in any business that competes with the Company within Australia."
What it really means: You can't work for any competing MSP or even a client for up to a year.
Legal reality: Under the Restraints of Trade Act 1976 (NSW), non-compete clauses are only enforceable if "reasonably necessary" to protect legitimate business interests. A blanket 12-month Australia-wide non-compete for a Level 2 technician is almost certainly unenforceable.
Negotiate: - Reduce duration to 3-6 months - Limit geographic scope to where you actually worked - Narrow to specific clients you directly managed - Add a "blue pencil" clause allowing courts to modify unreasonable terms
Non-Solicitation
Red flag wording:
"The Employee shall not solicit or attempt to solicit any client or employee of the Company for a period of 24 months."
What it really means: You can't contact any client you worked with or any former colleague for two years.
Legal reality: 24 months is excessive for most roles. Courts typically find 6-12 months reasonable for non-solicitation.
Negotiate: - Reduce to 6-12 months - Limit to clients you personally managed (not the whole company) - Exclude general networking and LinkedIn connections
Non-Dealing
Red flag wording:
"The Employee shall not deal with any client of the Company."
What it really means: Even if a client approaches you independently, you must refuse. This is the most restrictive and often unenforceable clause.
Negotiate: Remove entirely or limit to active clients during your engagement period.
2. Intellectual Property Assignment
Red flag wording:
"All intellectual property created during or in connection with employment, including but not limited to software, scripts, documentation, and processes, is the exclusive property of the Company."
What it really means: Everything you create — even scripts you write at home on your own time — belongs to the MSP.
Legal reality: Under Australian copyright law, works created in the course of employment generally belong to the employer. However, the clause above goes beyond that by claiming IP created "in connection with" employment, which is ambiguous.
Negotiate: - Limit to work created during paid hours using company resources - Exclude personal projects and open-source contributions - Add explicit carve-outs for pre-existing IP - Ensure you retain rights to generic scripts and tools
3. Unreasonable Notice Periods
Red flag wording:
"The Employee shall provide a minimum of 3 months' notice of resignation."
What it really means: You're effectively locked in for 3 months. If you leave without notice, the MSP may claim damages.
Legal reality: For most IT roles, 2-4 weeks is standard. Extended notice periods may be a restraint of trade if they effectively prevent you from leaving.
Negotiate: - Match notice period to your seniority (1 month for L1-L2, 2 months for L3+, 3 months only for senior management) - Ensure mutual obligation (the MSP must give equivalent notice) - Include garden leave provisions if notice exceeds 1 month
4. Unfair Termination Clauses
Red flag wording:
"The Company may terminate employment without notice in cases of misconduct, as determined solely by the Company."
What it really means: They can fire you on the spot for vaguely defined "misconduct" without due process.
Legal reality: Under the Fair Work Act 2009, serious misconduct must meet a high threshold. A clause that gives the employer sole discretion is problematic.
Negotiate: - Require written notice specifying the misconduct - Add right to respond before termination - Ensure alignment with National Employment Standards - Include provisions for garden leave during notice period
5. Salary & Overtime Traps
Red flag wording:
"The annual salary includes compensation for all hours worked, including reasonable additional hours as required."
What it really means: You're expected to work unpaid overtime as needed, and the salary is meant to "cover" it.
Legal reality: Under the Professional Employees Award 2020, salary offset clauses must be explicit. If your effective hourly rate falls below award minimums for overtime or penalty rates, the employer is liable for underpayment.
Negotiate: - Get a clear breakdown of what the salary offsets - Request overtime rates for hours beyond 38/week - Include on-call compensation rates explicitly - Add annual salary review tied to hours actually worked
6. Unclear Role Definitions
Red flag wording:
"The Employee shall perform such duties as may be reasonably assigned from time to time."
What it really means: Your job description is meaningless. They can assign you any work they want.
Legal reality: While some flexibility is normal, a completely open-ended clause can be used to justify unreasonable workloads or role changes without pay adjustment.
Negotiate: - Attach a job description to the contract - Require mutual agreement for significant role changes - Include a pay review mechanism for role changes
7. Equipment & Return Clauses
Red flag wording:
"The Employee shall return all Company property within 24 hours of termination. Failure to do so will result in deduction from final pay."
What it really means: If you can't return equipment within 24 hours (perhaps because IT hasn't set up a return process), they'll deduct the cost from your pay.
Legal reality: Under Australian law, employers cannot unilaterally deduct from wages without written authorisation for a specific amount. A blanket "deduction from final pay" clause may be unlawful.
Negotiate: - Extend return period to 5-7 business days - Require the MSP to provide a return checklist and process - Exclude deductions for normal wear and tear - Ensure compliance with Fair Work deduction rules
8. Confidentiality Overreach
Red flag wording:
"The Employee shall not disclose, use, or benefit from any Confidential Information, which includes all business information, client lists, pricing, processes, and technical methodologies."
What it really means: Everything is "confidential," including generic knowledge you'd use anywhere.
Legal reality: Reasonable confidentiality clauses are enforceable. However, overbroad clauses that attempt to prevent you from using general industry knowledge are not.
Negotiate: - Define "Confidential Information" precisely (specific client data, pricing, proprietary methodologies) - Exclude general technical knowledge and skills - Add time limits (e.g., 2 years post-employment) - Ensure it doesn't prevent you from performing your role at a new employer
9. Discretionary Bonus Clauses
Red flag wording:
"Performance bonuses are at the sole discretion of the Company and do not form part of the employment contract."
What it really means: Any promised bonus is not guaranteed and can be withheld without explanation.
Legal reality: While discretionary bonuses are common, the clause should include criteria and review mechanisms.
Negotiate: - Add measurable performance criteria - Include a minimum guaranteed amount or review schedule - Get bonus expectations in writing during the offer stage
10. Jurisdiction & Governing Law
Red flag wording:
"This agreement is governed by the laws of [jurisdiction different from your workplace]."
What it really means: Disputes must be resolved in a different state, potentially requiring interstate travel for Fair Work proceedings.
Negotiate: Ensure governing law matches your actual place of work.
Quick Reference: Red Flag Severity
| Clause | Severity | Enforceability |
|---|---|---|
| 12+ month non-compete | ð´ High | Often unenforceable |
| 24+ month non-solicitation | ð´ High | Usually excessive |
| IP assignment (all works) | ð¡ Medium | Depends on scope |
| 3+ month notice period | ð¡ Medium | May be restraint |
| Unilateral termination | ð´ High | May violate NES |
| Salary offset (vague) | ð¡ Medium | Must be explicit |
| Indefinite confidentiality | ð¡ Medium | Overbroad = void |
| Discretionary bonus | ð¢ Low | Common but negotiate |
[!WARNING] Never sign a contract with multiple high-severity red flags. The cost of an employment lawyer ($300-$500 for a review) is tiny compared to the career and financial impact of a bad contract.
Related Guides
- Contract Clause Analyser — Paste any clause to check for risks
- Non-Compete Clauses — When non-competes don't hold up
- MSP Contract Checklist — Complete contract review checklist
- How to Leave an MSP — Step-by-step exit guide
- Fair Work Rights — Know your legal rights
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