Non Solicitation Agreement

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Non Solicitation Agreement

A Brief Introduction About the Non Solicitation Agreement

A non solicitation agreement is required to safeguard the intellectual property, systems, processes, and innovations of an organization. It is entered to prevent the stakeholders of the organization from becoming a direct and powerful threat to the business. The agreement ensures that the parties to the agreement work only within their scope of performance. It also emphasizes the responsibility of the parties to the agreement in protecting the confidential information about the organization.

The practice of agreeing is widely prevalent in goods and or services businesses where the customer pool is limited, but the contribution from the customer is high. The automobile business is a classic example of the same. Also, the businesses which primarily trade on intellectual property like scientific research organizations enter into innumerable non-solicitation agreements. The bottom line is that the agreement prevents anyone from sharing or capitalizing on information that an organization considers sensitive and have a significant impact on its growth.

Who Takes the Non Solicitation Agreement – People Involved

It can be entered under various circumstances.

Between an employer and employee – It restricts the employee from joining the competitor when he leaves the organization. It also ceases the employee from soliciting the customers, contact list, and patented know-how of the employer. The non-solicitation agreement broadly specifies the activities that abstain the employee from doing, which can hamper the regular business of the organization.

Between an acquirer and target company – The agreement entered for a certain number of years can desist the target company from starting a similar line of business, luring away acquirer’s customers and hiring their employees where chances of information/know-how leakage are prevented.

Purpose of the Non Solicitation Agreement – Why Do You Need It?

  • Recognize the obligation of a person in maintaining the confidentiality of information about the organization.
  • Gain awareness of what is sensitive data.
  • Maintain a healthy and mutually rewarding relationship
  • Include individuals as partners in growth
  • Help the organization to be the top competitor in the line of business
  • Help to protect valuable employee and customer relationships.
  • Decide the ownership of intellectual property.
  • Protect valuable employees from leaving the organization.

The current employment trend indicates employees switch over jobs often or start their venture as soon as they gain considerable knowledge about the business. This hurts the confidentiality of the pool of information that an organization holds as valuable. Say it is the database of customers, future business plans, new product launches, trade secrets, mergers and acquisitions, intellectual properties like patent, trademark, copyrights, and business licenses.

So, the organizations will ensure that no stones are left unturned to protect their business. That is why the contract is significant at any time. It can save from troubles that your organization would have thought to be small. The agreement can build necessary protection and ensure that the organization will be sufficiently compensated in case of damages if any.

Contents of the Non Solicitation Agreement – Inclusions

The agreement shall broadly have the following contents.

  • The definitions of terms used in the agreement. For example, the assignability of the contract can be clearly explained by defining what a company is. It may mean its successors and assigns.
  • It should have a clearly defined duration within which the parties to the agreement have to operate.
  • The detailed list of activities that the parties to the agreement are abstained from doing.
  • What are all the exceptions to the abstinence?
  • What will be sufficient consideration for the covenants? The continuation of employment itself is adequate consideration.
  • The employees or other parties shall be required to return confidential information and documents upon the termination of the relationship with the company.
  • What are all the transitional provisions? For example, if an employee wants to switch to a new job, even though it is a violation of a non-solicitation clause, he can do so after he trains a replacement.
  • The employee/other party agrees that all the terms and conditions mentioned in the agreement are fair and just.
  • It should also be primarily mentioned that if single/any of the clauses are unenforceable, it cannot render the entire contract invalid. The non solicitation contract is still enforceable concerning the remaining clauses.
  • The employee/other party agrees that any violation of conditions specified in the agreement attracts damages as per the court of law governing the jurisdiction of the organization.
  • The eligibility of parties to the agreement to warranties and indemnities and how it will be done.
  • How can the contract be terminated? – by the breach, mutual consent, without cause, insolvency of either or both.
  • What are the effects of termination?
  • How do the contractual notices need to be served?
  • Any harm or damage that is irreversible and difficult to quantify to be compensated by injunctive relief.

How to Draft the Non Solicitation Agreement Sample?– Points to Consider While Preparing the Agreement

There are some important factors to be considered while preparing the contract:

  • What is the role of the employee? – Whether he is a top contributor?
  • What is the level of information handled by the employee? Confidentiality and sensitivity which gives an unfair advantage to the employee. It does not include information that an employee acquires typically during employment which is otherwise called as general knowledge.
  • The level of interaction of the employee with the customers
  • Ensure the agreement is not universal to all employees but to a specific group.
  • The nature of the company’s business.
  • The competitors to the business.
  • The trademarks, copyrights, patents held by the business.
  • The legitimate concerns of the business for entering the non-solicitation agreement.
  • The level of restrictions proposed to be imposed by the contract. It is to be ensured that it is meaningful and reasonable.
  • The duration which is beneficial for the parties to the agreement.
  • It is obvious but to mention your non-solicitation needs to be in writing.
  • It is best to have multiple templates as one size does not fit all.
  • It is a good practice to share a draft agreement with the employee to ensure that it is understood in the spirit with which it was written.

Negotiation Strategy

The best thing is to consider first by the parties to the agreement is the reason behind entering such an agreement. What exactly means solicitation is a grave line that needs to be carefully stretched by the parties. When an employee feels that the non-solicitation clauses are too weird, he may discuss with his employer as to how the same can be changed to remove apprehensions.

Benefits & Drawbacks of the Non Solicitation Agreement

Benefits:

  • The trade secrets and sensitive information are well protected – Nevertheless, it is the purpose of entering into such a contract. You have a fair picture of securing the confidentiality of information. A non-disclosure agreement, when combined with a non-compete agreement, can give the benefit of double security.
  • The leadership in business is maintained – Often, the agreements are primarily adopted by leaders in a particular industry. They never want to lose the priceless position they have gained on account of any hostile conditions.
  • A non-solicitation contract is a way to retain bright talents with the organization. – Not to overdose the confidentiality and anti-competition, the hidden and complementary objective of any the agreement is to maintain the efficient employees who are significantly contributing to the growth of the business in the short term and long term.
  • A very less likelihood of losing valuable existing and potential customers.

Drawbacks:

  • It set forth a risk of being in a legal battle. As restrictions placed can be too broad, there will always be a point of litigation risk to the company. The financial impact to the company is high, considering the sensitivity of a non-disclosure contract.
  • Courts are not in favor of the business most of the time. They give consideration primarily to individual rights and interests.
  • The contract may impact the morale of employees and may be a deterrent to those who want to join the company.

How to Beat a Non Solicitation Clause?

These are the effective defenses against non-solicitation clauses. However, proceed with caution as it is not a good practice to hop around a legally enforceable agreement.

  • The terms are too ambiguous that it becomes tough to enforce the contract legally.
  • If the purpose of triggering a non-solicitation clause is to harass the employee, the company will land in trouble.
  • The court of law may favor the employee/other parties to the contract by stating the terms of contract as unreasonable — for example, agreement restricting the employee to work anywhere for the next ten years.
  • If you can prove that the non-solicitation was done for more considerable public interest or social cause.
  • If a non-compete agreement was entered by some unreal assurance or promise, the non-solicitation clause could be defeated.
  • Reading between the lines of the restrictive terms used in the contract may work in favor of you many times.
  • The dishonest behavior of the employer can cause the non-solicitation clause to fail.
  • An open-ended indemnity will work in favor of the employees most of the time.
  • If the employer is unable to create sufficient and appropriate evidence for triggering the non-solicitation clause.

A non-solicitation agreement may throw a picture that it curbs the independence of the parties to the agreement. It is a protective measure to avoid adverse incidents between a company and its valuable people.

The agreement can be signed at any time during the relationship. But it is best to do it at the beginning to move forward with a clear understanding of what is ahead for the business and the people. It protects essential employees and customer relationships. The exit of such an employee can hamper the relationship of the company with the customer. Non-solicitation can also prevent an old employer from taking some staff upon leaving during a company sale or restructuring. Thus, a non-solicitation agreement works in the best interest of all the people in the value chain of the business.