The main purpose of a non-solicitation agreement, one of three most restrictive covenants that can be found in employment contracts, is to prevent self-employed individuals from “stealing” the company’s valuable assets, including clients, customers, vendors and more.
The specific language of a non-solicitation agreement may vary depending on the type of engagement, but the basic principles and goals are generally the same. In application to self-employment, for example, the agreement may focus on preventing the individual from “poaching” business from the company’s clients or customers after the engagement has ended while the one for full-time employees may also include provisions related to soliciting or hiring other employees.
Relationship Between Non-solicitation and Non-compete Clauses
Despite non-solicitation agreements being separate from those of non-compete, the verbiage oftentimes used in the impugned non-solicitation clause can lead to confusion and different outcomes in enforceability of either clause. In the below section, What Should be Included in a Non-Solicitation Clause in Application to an Independent Contractor?, we’ll explore how.
For example, some EU member states find it much easier to impose non-compete agreements while others may favor the use of non-solicitation instead. In the US where non-compete agreements are legal but very strictly regulated by each state's requirements and where a proposed ban is in favor, companies often impose non-solicitation. The province of Ontario after the state of California, is the only other North American jurisdiction to do away with non-compete agreements, indicating the province’s relative progressiveness with regards to employment rights and protections.
Where Non-solicitation Clauses are the Most Common
There isn’t harmony across the EU with regards to these two restrictive covenants and non-solicitation agreements are far less commonly used in parts of Asia and the Middle East.
In China, one of the reasons is because there’s no specific concept of “independent contractor.” In the UAE, it’s arduous both for an employer to be able to hire for and an independent contractor to obtain part-time work, which itself is legally considered under an employer-employee relationship.
Independent contractors, like full time employees, also see non-solicitation clauses as part of their contracts with employers, either as separate contracts or a clause within one. For these reasons, our discussion of non-solicitation is generally applicable to Western and some European countries in the context of a company’s relationship with their independent contractors.
Non-solicitation Defined in an Independent Contractor’s Employment Contract
In a buyer-seller relationship, a non-solicitation agreement protects the buyer. In one of employee-employers, including top-level executives, it protects the employer. To independent contractors, the agreement typically focuses on a company’s employees, customers, and various business partners and possibly its intangible assets.
Companies in jurisdictions in which non-compete clauses are prohibited or highly discouraged often enter into non-solicitation in conjunction with non-disclosure agreements. This is to cover all their bases using a non-compete clause’s similar nature and a non-disclosure clause’s restrictions. An independent contractor is free to work with as many companies and clients as they can like, possibly exposing business interests to others including competitors or taking them for personal gain that qualifies as competition.
The Enforceability of a Non-solicitation Clause
Because non-compete agreements are strongly discouraged or prohibited, they may be difficult to enforce. If enforced, they’d only be attempted to do so in the court. In the eyes of the law, the nature, scope, and language of non-solicitation agreements often overlap with those of non-compete, one of the reasons it is difficult to enforce. Furthermore, in practice, the nature of a non-solicitation clause often is or includes that of a non-compete.
Difficulty in Enforceability: Canadian Case Law
The impugned non-solicitation clause has been ruled by the Ontario Court of Appeal in Donaldson Travel Inc. v. Murphy 2016 ONCA 649. The travel agency (Donaldson) appealed the dismissal of its claims against the respondent departed employee and her new employer. One of the reasons the appellate judge also did not rule in favor of the travel agency was because the non-solicitation clause in the employment contract, which was, “... in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by [the appellant], directly, or indirectly,” was a interpreted as a non-compete, not a non-solicitation clause. This demonstrates to employers that a mere exclusion of a non-compete clause masked by a non-solicitation clause, does not change the nature of the restrictive covenant.
What Should a Non-solicitation Agreement Consider?
Non-solicitation agreements or clauses employers include should be:
- Clear, narrow, and specific in scope; not broad or vague in language or scope of restrictions or unambiguous in any way as it applies to the limitations to ensure that it is comprehensible
- Reasonable in temporal or spatial terms. For example, the independent contractor should not be restricted from working within the same state, province, or even the country.
- Well-defined limitations. For example, most non-solicitation agreements should not be legally binding for more than two years.
Steps Companies May Consider to Protect Business Interests
One way companies can lower the risks of an independent contractor violating non-solicitation agreements is limit the amount of information shared. Another way is to convert them into employees with full-time status. A full-time employee may be more likely to develop loyalty to and feel engaged at the company and so less likely to take with them valuable company assets for personal gain. As a very last resort, companies may terminate the professional working relationship if the contractor fails to deliver in accordance with the employment contract's terms.
Borderless’ team of legal experts are here to support you when it comes to understanding non-solicitation agreements among other related conditions you may find crucial to your company. We operate in over 170 countries and are here to help you with finding, onboarding, and managing talent so you can focus on growing your business. Book a demo today to learn more.
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