Secondary Blocks
Non-solicitation of key personnel
This guide explains the different parts that make up the block dealing with the non-solicitation of key personnel.
Introduction
Non-solicitation of key personnel
The non-solicitation is used to prevent one party from attempting to hire or recruit the other party’s key employees, either during the term of the contract or for a specified period after the contract ends. These provisions are designed to protect the interests of both parties and maintain the stability of their businesses.
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Non-solicitation provisions are like saying, “We’re working together, but we agree not to try to hire away each other’s important employees during our collaboration and for some time afterwards.”
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Here’s a practical example in the context of a tech contract:
Imagine that Company A (a software development house) enters into a contract with Company B (a tech startup) to develop a new mobile app for Company B. Both companies have highly skilled employees with valuable expertise in software development, project management, and other areas. To protect their investments in their employees, the companies might include a non-solicitation provision in their contract.
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This non-solicitation provision could state that during the term of the contract and for 12 months after its completion, neither Company A nor Company B may directly or indirectly try to recruit or hire the other company’s key employees. This prevents both companies from poaching each other’s talent, ensuring they can retain their valuable team members and maintain stability in their businesses.
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If either company violates this provision by attempting to hire the other company’s key employees, they might be required to pay damages as compensation for the breach.
Parts
Non-solication
This part provides that during the agreement and for a certain period after the agreement ends, neither party can try to hire the other party’s key employees, either directly or indirectly.
Exclusions
This part stipulates the exclusions under which a party won’t be violating the non-solicitation block if they hire someone. Typical exclusions include, if the party hires someone who
- is not employed by the other party at that time;
- contacts them without being encouraged by them; or
- responds to a general job advertisement in newspapers, the internet, or other media.
Acknowledgement of fairness and reasonableness
This part states that one party (usually the party who is restricted from hiring the other party’s employees) agrees that the non-solicitation block is fair and reasonable, considering the nature and purpose of the agreement.
Damages
If a party breaches the non-solicitation block, this part states that the party who tried to hire the employee must pay the other party a certain percentage of the employee’s annual total cost to the company as compensation.
Acknowledgement of pre-estimated damages
This part states that both parties agree that the damages mentioned are a reasonable estimate of the financial loss the non-soliciting party would suffer if the non-solicitation block is breached.
Survival
This part reaffirms that the provisions about not hiring each other’s key employees will continue to apply even after the agreement has been terminated, expired, or canceled.
Important considerations
World Commerce and Contracting Principles
World Commerce and Contracting provides the following principles-
Non-Solicitation provisions are appropriate in cases where one party is providing professional services or other services requiring unique skills to another party and wants to prevent its resources from being taken away by the other party. The service provider may wish to use a Non-Solicitation provision to ensure it has resources to provide continuity of services to all of its customers and to prevent losses related to intellectual property, confidential information, and investments it has made hiring and training its Employees. Similarly, a customer may seek a Non-Solicitation clause to prevent a supplier from enticing people with industry knowledge or other marketable skills to benefit the supplier.
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Non-Solicitation provisions may be unilateral or mutual. While seeking mutuality may help ensure the language is drafted fairly, there may be a rationale for unilateral terms. In case of using a unilateral Non-Solicitation provision, it may be useful to briefly indicate:
- that all parties agree that the unilateral provision is a fair requirement considering the nature of the transaction/purpose of the contract between the parties,
and - a brief description as to why a unilateral provision is necessary. Crafting of a unilateral provision in this manner may avoid challenges by the other party (under the Non-Solicitation obligation).
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Non-Solicitation clauses should not prohibit a party from hiring people who respond to a General Solicitation or as a result of an individual seeking employment on his or her own initiative. Often companies do not have safeguards in place to comply with the terms of a Non-Solicitation provision that prohibits those sorts of activities in the job market. Further, such a restrictive covenant may not be enforceable if it restricts competition or the ability of Employees to have reasonable employment opportunities.
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