Difference between Non- Solicitation and Non-Compete Clauses

With expansion of technology as well as diversification of business transaction(s), the competition has also increased and so has the consideration of terms of agreements for keeping the business interests of parties secured.

Typically, non-solicitation and non-competition (or non-compete) clauses are found in employment and staffing agreements.However they are gaining relevancy in diversified transactions. Majority of the times (but not necessarily) they are specified under one or succeeding sections.

Both terms altogether have different applicability. The difference between both lies in the scope of what they prohibit or restrict.

While a non-solicit restricts, restrains or prohibits the employee or vendor or a obligated contracting party (in a transaction) from contacting whether directly or indirectly the employer or other party’s past, present (or sometimes prospective) customers, vendors, clients or employees as is specified in the non-solicitation clause.

A non-compete on the other hand prohibits current and former employees, vendors , sub-contractors or current or previous business owners as the case may be from engaging in the same business or industry as the other party. The Prohibition is typically limited by time and geographical area, which should be reasonable for such clause to be legally enforceable.

As such whilst the non-compete is an absolute prohibition on the contracting obligated party from engaging in a similar industry or business, the non- solicitation clause allows the other party to engage in the same industry or business but the employee must not engage in such business with the employer’s customers or vendors. Other interpretation depending upon the wordings of the related term and with respect to Vendors or Subcontractor transactions would intend to restrict a party from poaching employees of one party for a fixed term of time, while working in the same industry.

Furthermore, reasonableness is usually the primary test for enforceability of these provisions.

Thus while drafting Non-Compete and Non-Solicitation provisions, the consideration of applicable law and related test of reasonableness must be analyzed for making these provisions effective and enforceable. Besides descriptive provisions pertaining to Non Solicitation and Non Compete would make them effectively enforceable.

Leave a Comment

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: