No Poaching Agreement

Home » Agreement Articles » No Poaching Agreement

No Poaching Agreement

A Brief Introduction About the No Poaching Agreement

In business, it is common for people to change their jobs and move from one employer to another. Employers in a particular market are governed by antitrust laws and regulations. These ensure that all of them compete in a fair manner. One such aspect includes not poaching a competitor’s employees.

Poaching Definition: In geography, poaching is defined as the illegal hunting or capturing of animals. But in business, it refers to the practice of one employer hiring employees (or former employees) of a competitor.

Competitors can formally or informally agree not to poach each other’s employees. A formal understanding is reached through a no-poaching agreement. It is legal only if it is executed for legitimate reasons in a business transaction. In any other case, it is illegal. For example, if company A is providing consultancy services to company B on a project, they can enter into a no-poaching agreement for the continuation of the transaction. In the United States of America, these agreements are termed anti-competitive, and employers may face civil or criminal liability on violation of the agreement.

Purpose of a No Poaching Agreement

The main idea behind this agreement is to prevent a company from stealing employees from competitors. It allows employers to retain their highly skilled employees. When two companies have this agreement in place, they will not try to influence each other’s employees by offering extra benefits. This enables them to work smoothly without worrying about their employees, leaving them for the other company. This does not mean that employees cannot look for other employment. The agreement lays down the understanding between the stated companies that they will not chase each other’s employees in an unfair manner.

Contents of a No Poaching Agreement

A No Poaching Agreement typically contains the following terms:

  • Names of the parties
  • Date of the agreement
  • Definition of terms
  • The intention of entering into the agreement
  • Practices prohibited under the agreement
  • Term of the agreement
  • Dispute settlement
  • Governing law
  • Signature of the parties

No Poaching Clause

A ‘no poaching clause’ states that for the duration of the agreement and up to a certain time after the agreement, the parties will not poach or attempt to poach an employee of the other party without its prior written consent. The amount of time for this provision to be reapplied after the agreement has ended may range from a few months to a few years. But it should be reasonable.

How to Draft a No Poaching Agreement

When drafting the agreement, consider the following points:

  • Clearly identify the parties by using the legal names of the companies and their registered business address.
  • Define all the terms used in the agreement to avoid any confusion about their interpretation.
  • State the practices that are not allowed under the agreement. This includes directly or indirectly poaching or attempting to poach an employee of the opposite party during the term of the agreement. It can also extend to non-poaching of independent contractors of the company.
  • Mention the time for which the agreement will remain in force.
  • Parties can agree on a mechanism to settle disputes between them. Commercial contracts generally adopt arbitration as a mode of dispute resolution due to its advantages over traditional litigation.
  • Mention the governing law of the agreement. The agreement will be interpreted according to this law. For instance, if the governing law is that of the state of New York, then the provisions will be construed according to it, and all the proceedings will follow that law.
  • Ensure that both parties have signed the agreement. An agreement without the signature of either party will not be considered to have been executed.

Is Poaching Employees Illegal?

Poaching employees of another company is usually not illegal. But there are a few situations where it may be considered illegal. Almost all employers make their employees sign a ‘non-compete’ clause. This means that the employee cannot work with a competitor for a certain time after leaving the employer. It is a binding contract between them. If another company tries to hire an employee who is bound by a non-compete provision, it may be accused of interfering in a contractual relationship. Both the company and the employee who is being poached can be sued in court. The former can be sued for intentionally inducing the person to breach his contract. Therefore, before hiring a former employee of a competitor, the company should conduct due diligence and check if there are any non-compete provisions in operation.

Benefits and Drawback of a No Poaching Agreement

Benefits:

  • The agreement allows companies to work smoothly without the fear of losing their employees.
  • It protects the companies from their competitors that may indulge in unfair competitive practices.

Drawbacks:

  • Such agreements are usually against antitrust laws except in very limited situations.
  • They are hidden from the employees. They are not told if their employer has a no poaching agreement with another company. These agreements limit an employee’s chance of switching to another company.

What Happens If a No Poaching Agreement Is Violated?

In case of violation of the agreement, the parties can choose to resolve the issue among themselves. They can also opt for arbitration or any other dispute settlement mechanism mentioned in the agreement. If that fails, the aggrieved party can sue the other party in the local court.

While a non-poaching agreement between two companies protects their interests, it is illegal per se. Only in exceptional situations can it be enforced. It is unfair to the employees, who are mostly unaware of its existence. It does not allow them to change their job and look for better prospects. However, if a business situation is covered by the exceptional circumstances that allow such an agreement, the points discussed in this article should be kept in mind.