An organization or business may forecast its possible profit or loss for a given year and the resources required, but it cannot forecast human behaviour. A firm can’t predict if its employees will get along. Thus, it should come as little surprise that employee disputes might impede the company’s expansion. Although it might not be possible to predict employee behaviour, it is still possible to regulate it. Contracts with employees can be used to accomplish this. This blog explains What a Non-Solicitation Agreement is.
A contract that protects the interests of both the employer and the employee is known as an employee contract. This type of contract sets the conditions of the two parties’ roles, responsibilities, and compensation. Amidst increasing global competition, enterprises are taking all necessary precautions to safeguard their requirements. To prevent impeding the company’s expansion, these employee contracts include specific provisions that limit employee behaviour both during and after the job term. One such clause that benefits the employer is a non-solicitation agreement, which has been the subject of much discussion to determine its validity.
- A non-solicitation agreement is a writing characterized between employer and worker which limits such employer’s prerogative of attentiveness to the people who introduced his or her vow once leaving their firm. Generally, the employee has to pledge not to approach clients for a certain period of time that was agreed upon after terminating his/her current job.
- Legal definitions of soliciting might be somewhat broad. Broadly speaking, it refers to reaching out to clients in an attempt to convince them to work with a new, rival company.
- For many firms, non-solicitation agreements may be quite beneficial. For example, many companies devote a lot of time, money, and resources to growing their clientele and consumer list, and they also make significant investments to protect the privacy of their customer list. These firms may want to stop workers from accessing the customer list, departing, and then contacting former clients on behalf of a different or rival company.
- Nonetheless, non-solicitation contracts aren’t always upheld.
- The first priority for the employer to enforce the non-solicitation agreement is a valid business interest. Common instances might include safeguarding current clientele or preserving trade secrets or private data for businesses.
- Second, the non-solicitation agreement’s length and scope should make sense. Duration refers to how long it spans, such as a year, five years, etc. The geographic region it covers—a city, a region, the entire state, etc.—is called its scope.
- A non-solicitation agreement’s ability to satisfy this two-part test will rely on the particulars of the business and industry.
Part of a Larger Agreement
Non-solicitation agreements are typically included in longer documents. These are:
- Non-disclosure agreements
- Employment contracts
- Non-compete agreements
In employment agreements, a non-solicitation agreement is one of numerous frequently included terms. They can function as distinct contracts as well. Non-compete clauses and non-disclosure or confidentiality contracts are some more examples. Collectively, the three are occasionally referred to as the restrictive covenants. These agreements may cover both regular employees and contract workers.
A non-compete agreement prohibits you from working for another company or launching a rival enterprise for a predetermined period. According to the non-disclosure agreement, you are not allowed to discuss anything private that you learn while working. Non-disclosure and non-solicitation differ in that the former involves disclosing sensitive information while the latter does not include utilizing it. That being said, they are the same in that they’re subject to a time restriction.
When Should I Make Use of a Non-Solicitation Contract?
- As one might anticipate, non-solicitation agreements are most frequently used by businesses with staff who have extensive client and customer interaction. For example, an administrative assistant working for a doctor may have a lengthy and private client list. In contrast, a sales representative for a firm that supplies other companies with goods would have a personal connection with each client.
- These contracts safeguard significant business and employee connections. In other cases, poaching occurs when a departing employee urges her friends to work for her new employer. This is known as solicitation. Asking clients to support the new business rather than the previous one is equivalent.
- Non-solicitation may also be in effect during a reorganization or sale of the business. A unique transitional non-solicitation agreement, which prohibits the former owner from taking some or all of the employees with them after they leave, may be included in the conditions of the sale.
- Companies occasionally also try to prevent passive and indirect solicitation, which implies that a former employee who launches a firm cannot use advertising. Since making this requirement would prevent a business from disclosing its existence to others, it may be illegal. It is undoubtedly against the spirit of non-solicitation to publicize that a firm has hired a salesman from another company; such information should be included in an agreement. Should that prove to be unfeasible, the concerned salesperson ought not to deal with consumers who decide to transfer due to the announcement.
- Determining IP ownership is another purpose for non-solicitation and non-compete clauses. Retaining intellectual property is simpler when you declare that any patents, copyrights, brands, and trade secrets created by workers while they work for the firm belong to it.
Parties to a non-solicitation agreement
As previously said, non-solicitation agreements were mostly used between employers and employees. Nonetheless, participants in a non-solicitation agreement may now include any of the following:
1. Employer and employee nonsolicitation agreement
To guarantee that during employment and following termination of employment, new hires will not use their connections to compete with the employer’s company, employers require new hires to sign non-solicitation agreements.
2. Non-solicitation agreement between two rival entities
Until now, this idea has been more widely accepted in international legal systems. However, India’s popularity has grown due to its thriving economy. These days, two companies use non-solicitation agreements to split the market and scope in the same commercial activity. Here, the parties mutually agree to refrain from approaching or soliciting any of the other party’s workers, subcontractors, suppliers, service providers, client list, etc.
3. Service Level Agreement and non-solicitation
When a company or individual contracts a service provider for a predetermined amount of time, a service level agreement becomes relevant. Setting broad terms of service, expected norms, and key performance indicators is the major goal of signing into a service agreement. In this case, both parties require the other’s protection against solicitation since they must exchange business-related information over the agreement’s duration.
4. Nonsolicitation clause for Freelancers
Since the COVID-19 outbreak, employing freelancers has become increasingly popular. Additionally, companies might pay less to acquire specialized skill sets. Meanwhile, any company signing a freelancing arrangement would wish to safeguard its assets from the freelancer’s unauthorized use. Therefore, a non-solicitation provision is a necessary component of the freelancing contract.
Expert Advice for Creating a Strong Non-Solicitation Agreement
It will assist you in reducing future dangers if you take into account these factors before signing any non-solicitation agreements:
- Make sure the scope and the length of non-solicitation are stated clearly
- Including an arbitration provision will facilitate decision-making in the event of future conflicts and
- You may uphold your rights by having a legal services provider evaluate the agreement.
What Takes Place When a Solicitation Agreement Is Triggered?
If you, as the employer, witness a former employee breaking the terms of the non-solicitation agreement, you must take immediate action to obtain a cease-and-desist order. You must demonstrate that the employee violated the terms of the agreement to obtain one. A court may reject an agreement for several reasons, including:
- Excessively wide: The non-solicitation agreement is limited to what might be harmed the company by a former employee.
- Too long: The duration of non-solicitation agreements varies by state and jurisdiction, but they shouldn’t be in place indefinitely.
- Excessively broad: Although it’s simple to draft, a one-size-fits-all contract isn’t appropriate for every situation. For example, a car dealership employs two salespeople: an inexperienced individual who sells tiny cars to individuals and an executive who sells pickups to commercial fleets. Given that the first employee is more useful to the business, the second should have a less restrictive contract.
- Incorrect jurisdiction: Because of the peculiarities of the legal system, state and even local contract laws might differ significantly. If you would like your non-solicitation agreement to be valid, you must bear this in mind. Additionally, keep in mind that not all courts will concur with the jurisdiction you believe is relevant. Nonetheless, it often travels to the employee’s home state.
In conclusion, unless a negative covenant expressly limits a trade or profession, it is not considered a restriction. An example of this would be a non-solicitation clause. As a result, for your non-solicitation agreement to be successful, you need to get advice from professionals who can help you according to your unique needs. Get in touch with Kanakkupillai specialists to make sure your agreement is accurate and protects your rights.