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Seven Issues to Look for in Non-Solicitation Clauses

Posted by Stacey Heller on May 8, 2020 at 12:48 PM

Non-solicitation clause and provisionA non-solicitation clause is a provision in a contract generally prohibiting the hiring (or attempting to hire) of one of the other party’s employees or contractors. It can be thought of as an “anti-poaching” provision. Often, vendors will add such a provision to keep its customers or clients from poaching the vendor’s employees in an attempt to avoid using the vendor by bringing the vendor’s expertise in house. When this happens, the vendor loses not only a key employee, but also, in many case, a client.

Although non-solicitation clauses are more commonly sought by vendors, it is also possible that a client may seek a reciprocal promise not to solicit in certain situations. To prepare, here are seven issues to look out for when considering or reviewing a non-solicitation provision:

  • Should you agree to this provision at all?
    Your first consideration should be whether the concept of non-solicitation makes sense in the given context, or whether you should object and try to delete the clause all together. After all, just because a contract includes a certain provision does not mean you are obliged to accept it. In the case of non-solicit clauses, they are often used in situations where a vendor is providing a highly-customized service, as opposed to providing a commodity-based service that can be easily replaced or found elsewhere. The purpose of the clause is to protect a party from having its unique, highly-trained resources from leaving, and therefore having have to reinvest in hiring and retraining a replacement. With commoditized or high turnover jobs, this clause might not make sense.

  • Should it be mutual?
    Typically, non-solicitation clauses are sought by vendors who are providing services to clients, particularly in areas where the client lacks in-house expertise. However, there are circumstances where a mutual obligation might make sense, or even where a client might unilaterally propose this provision to the vendor. For example, it is becoming increasingly common for clients to outsource work which they could do internally in order to create bandwidth for more strategic projects. An IT department, for instance, might hire a vendor to handle specific tasks, and in such case, the client does not want the vendor to steal its star IT employee with whom the vendor may work closely.

  • Should it apply only to employees?
    Typically, a non-solicitation clause is limited to the vendors’ employees since the vendor is trying to protect its investment in hiring and training them. However, in situations where a vendor’s non-employee outside contractor or consultant works exclusively or extensively for a vendor, and a lot of resources have been spent onboarding and training the consultant, it might make sense to include them within the scope of the provisions. On the flip side, clients may wish to prohibit the poaching by the vendor of client’s own contractors (e.g., if they extensively use a specific individual consultant) and/or customers (e.g., if the vendor has access to the client’s customer lists or will be working directly with client’s customers).

  • All employees or just a subset?
    Determining the appropriate scope of the non-solicitation restriction is another element to consider. Does a blanket restriction make sense, or should it be limited to only those employees of the vendor who were directly involved in the provision of services? For example, if you hire a large website design firm, but only closely work with one person from that firm, should the restriction against poaching apply only to that person with whom you have a direct relationship? This is an important question, particularly for large companies, because the HR department may not be aware of the vendor relationship or the non-solicitation provisions in the contract. 

  • Should there be exceptions/carve outs?
    It is common practice to exclude from the non-solicitation clause any new hires that result from general ad postings, as long as the ad does not directly target a particular employee, even if the respondent happens to work for the other company. Again, this is especially important for large organizations, where the HR department might not be aware of the vendor relationship or the non-solicitation provisions therein.

  • How long should the non-solicit period last?
    Typically, the non-solicitation requirement will last for the term of the project or agreement, plus an additional six months to one year afterwards; and/or for six months to a year after the individual employee/contractor ceases work with the other party (e.g., if that individual terminates work on the project long before the agreement ends).

  • What is an appropriate remedy in the event of breach?
    Often, the breaching party will be expected to pay a headhunter’s or finder’s fee to the other party, typically in the amount of one year’s worth of salary for the solicited resource. However, the language in the provision should make clear that equity or other benefits are not to be included when calculating this amount. Another common remedy is to agree up front that breach could result in irreparable harm to the affected party and therefore, a restraining order and/or preliminary injunction is the appropriate remedy.

When it comes to non-solicitation clauses, there are clearly more nuances than one might anticipate with this standard contractual provision. While this checklist of issues offers a good starting point, it should not replace the advice of a legal advisor who is familiar with your business and overall risk tolerance. If you have questions about the mechanics of non-solicitation clauses or commercial contracts in general, please contact Stacey Heller at sheller@outsidegc.com or (703) 403-5347.

 

Stacey Heller is an experienced transactional attorney and has worked with companies in a variety of industries, including technology, retail, telecom, advertising, hospitality, and real estate and construction. Stacey regularly handles a broad range of work for her clients, from commercial agreements to real estate (commercial leasing and construction), as well as dispute resolution matters. Stacey can be reached at sheller@outsidegc.com or (703) 403-5347. 

Topics: commercial contracts, non-solicitation clause, contract terms

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