Introduction
In the legal world, drafting airtight contracts is a key skill. It can make or break a client’s business interests. Among the many clauses that lawyers regularly work with, the non-solicitation clause stands out as an essential tool for protecting businesses from unfair competition.
Businesses are constantly competing for clients, customers, and talented employees. While competition is natural, there are certain ethical and legal boundaries that organizations put in place to protect their interests. One such tool is the non-solicitation clause, a crucial provision in many contracts, particularly in employment and business agreements.
Whether you’re an aspiring lawyer or already practicing, knowing how to draft an effective non-solicitation clause is an essential skill.
What is a Non-Solicitation Clause?
Meaning
At its core, a non-solicitation clause is a legal agreement that prevents one party from actively soliciting (or poaching) clients, customers, or employees of another party. It ensures that when an employee leaves a company or when two businesses part ways, they do not unfairly take advantage of existing relationships to gain an upper hand.
For instance, imagine a senior salesperson leaving a company and immediately reaching out to all the clients they previously handled in an effort to lure them to their new employer. Alternatively, consider a rival company headhunting key employees from a competitor to gain insider knowledge and business strategies. Such actions could have a severe impact on a business, which is precisely what a non-solicitation clause aims to prevent.
How it works in Practice
- Employee Agreements: Many companies require employees to sign a non-solicitation agreement, ensuring that after they leave, they won’t approach the company’s clients or attempt to recruit their former colleagues. This helps maintain business stability.
- Business Contracts: Companies also include non-solicitation clauses when entering into partnerships, joint ventures, or service agreements. This prevents one party from unfairly taking the other’s clients or employees once the contract ends.
A typical non-solicitation clause might look something like this:
“Non-solicitation: During employment and for a period of 24 (twenty-four) months following termination of employment for any reason, Employee shall not directly or indirectly:
(i) solicit, induce or attempt to induce any employee of the Company to leave the employment or service of the Company,
(ii) solicit for hire or hire or attempt to solicit or hire any employee or
(ii) solicit, indure, or engage in business with or interfere with the relationship between any existing or prospective customer supplier, client, distributor, vendor, investor or other business relationship of the Company”
The Enforceability of Non-Solicitation Clauses
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While these clauses may appear straightforward on paper, their enforceability is far from certain. Courts worldwide, including those in India and the UK, have been hesitant to enforce overly restrictive non-solicitation clauses, stressing the need to strike a fair balance between protecting business interests and safeguarding an employee’s right to work.
What Makes a Non-Solicitation Clause Enforceable?
The enforceability of a non-solicitation clause varies depending on the reasonableness of the restriction. Courts typically assess whether:
- The clause protects legitimate business interests: Employers can prevent former employees from unfairly exploiting their client relationships, but they cannot impose broad restrictions simply to stifle competition.
- The scope and duration are reasonable: A clause that bars an employee from working in an entire industry or for an excessively long period is more likely to be struck down.
- It does not impose an unfair restraint on trade: Employment laws generally discourage restrictions that prevent individuals from earning a livelihood.
- A Pro-Employee Approach in India
In India, Section 27 of the Indian Contract Act, 1872 makes it clear that any agreement that restricts trade or profession is void. This means that, unlike in some Western countries, non-compete and non-solicitation clauses are viewed with skepticism, especially if they extend beyond the period of employment.
Indian courts have consistently favored employees in such cases. A landmark ruling in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (1967) set the tone by emphasizing that:
- A non-solicitation clause can be enforced during employment but becomes invalid once the employee leaves the company.
- The clause must be reasonable in its scope and duration; an overly broad restriction on an employee’s ability to work will not hold up in court.
In other words, if a company tries to stop a former employee from working in their industry for years after leaving, the courts are likely to reject such a restriction. However, narrowly tailored non-solicitation clauses that protect a company’s direct client relationships may still be upheld.
Try it Yourself!
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Scenario
You are a legal associate at XYZ Tech Solutions, a software company specializing in cloud computing services. The company has recently experienced issues where former employees have left and solicited key clients for their new employers. To prevent this, XYZ Tech Solutions wants to include a non-solicitation clause in its employment contracts.
Your task is to draft a reasonable and enforceable non-solicitation clause for the company’s employment agreement.
Take Note of These Elements before You Start:
- Who should be restricted? Only the departing employee, or should it also include third parties like competitors?
- Who is protected? Clients, customers, employees, or all three?
- What actions should be restricted? Direct solicitation, indirect solicitation, hiring, or simply any engagement?
- For how long? What is a reasonable duration after employment ends?
- What is the geographical scope? Should the restriction apply globally or only in specific regions?
Sample Non-Solicitation Clause
“Non-Solicitation: The Employee agrees that during their employment with XYZ Tech Solutions and for a period of twenty-four (24) months following the termination of their employment for any reason, they shall not, directly or indirectly:
(i) Solicit, induce, or attempt to induce any employee of XYZ Tech Solutions to leave their employment or service with the Company;
(ii) Solicit for hire, hire, or attempt to hire any current employee of XYZ Tech Solutions;
(iii) Solicit, induce, engage in business with, or interfere with the relationship between XYZ Tech Solutions and any existing or prospective client, customer, supplier, distributor, vendor, investor, or other business associate with whom they had direct dealings in the last twelve (12) months of their employment.
This restriction shall apply within India and shall not prevent the Employee from engaging in general advertising or working in the same industry, provided they do not engage in direct solicitation as outlined above.“
There’s a Lot More to Learn!
Great job reaching this stage! However, contract drafting is a skill that requires continuous learning and practice. If you wish to deepen your understanding, consider exploring the Online Certificate Course on ‘Contract Drafting & Negotiation’ by LLS for a structured learning experience. These courses by LLS are:
- Developed by experts who have worked at top law firms like Trilegal, SAM, and Khaitan and Co., and in-house at corporates like HDFC and Infosys.
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- Reviewing simple agreements can earn you Rs. 5000 per agreement, while drafting complex agreements can bring in 2-10 lakh rupees.
- Includes a module on negotiation, a crucial skill that can help you negotiate rent agreements, employment contracts, and M&A deals worth crores.
- Save yourself 4 years of legal career learning by mastering the same skills in just 2 months.
- Learn how to negotiate effectively in daily life, job interviews, contractual negotiations, and competitions.
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The ‘6-Month Long Course ‘Becoming a Freelance Contract Drafting Expert’ by LLS consists of 44 live sessions led by industry experts and empowers students to draft over 24 complex contracts, including website terms and international agreements. It also teaches you how to excel as a Contract Drafting Freelancer through platforms like Upwork, LinkedIn, etc. Get the following benefits:
- Well-researched, practical, and detailed reading resources.
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