Non-Competition and Non-Solicitation

Non-Competition and Non-Solicitation

There are a number of agreements that embed these two clauses, too many parties skim through them without really getting into its implications in the future or giving another thought of whether these clauses should be incorporated or not. To better understand what is at stake, here is a shot:

What do they mean?

A non-competition clause is a provision in an agreement that prohibits a party, within a specific territory and for a certain period, from working for or collaborating with a competing company or starting its own competing business. This clause is often used to protect confidential information and trade secrets.

A non-solicitation clause is a provision in an agreement that prohibits a party, for a certain period, from soliciting or recruiting employees or clients from the company after the party terminates a given agreement with the other party. This clause is often used to protect one party’s relationships with employees and clients.

The Similarity

• Protection of the Confidential Information and Relationships
• Prohibition on certain actions when a party terminates a given agreement with the other party
• Time bound, the clauses cannot be in perpetuity
• Clauses can be used in numerous agreements

The Difference

• Non-competition clause prohibits a party from working for a competing company or starting its own competing business.
• The Catch - The exiting party can poach your employees or clients or other relationships IF they are not doing the same or similar business.

• Non-solicitation clause prohibits a party from soliciting or recruiting employees or clients or other relationships from the other party.
• The Catch - The exiting party can join a competing business.

Global Challenges

A non-compete clause is acceptable however there can be disputes when push comes to shove. This is due to the fact that many countries have a constitutional right of freedom to work and the non-compete clause is a restrictive covenant. Hence drafting of this clause has to be very specific to avoid contest. Pay closer attention to -

• reasonable in scope, 
• define the prohibited activities and limit the geographical scope of the restrictions, 
• have a clear and reasonable specified term, and 
• not against the public interest.

A non-solicitation clause though globally acceptable but if challenged the relevant party has to be able to prove that it has a legitimate proprietary interest to be protected by the non-solicitation clause. Pay closer attention to -

• the duration of its applicability must be for a reasonable period.

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