Holly founded ExitPromise.com as well as StartupPromise.com and so far has answered more than 3,000 questions asked by business owners about starting, growing and selling a business.
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If you’ve grown a valuable business, there is no doubt your employees are a big part of your success. You also know that hiring, training, and managing a great team of productive employees is a difficult task. And keeping your best employees is yet another accomplishment! But the painful truth is your competition would be very pleased to hire away your best employees.
After devoting great resources to their development, many entrepreneurs worry about the potential loss of valuable employees to their competitors. They worry they may become vulnerable to demands for promotions, pay raises, increased benefits, and perks. They worry about having employees who are not under some form of contractual agreement because when it becomes time to sell the business its value will be less. Entrepreneurs were advised in the past few decades to address these concerns through the use of a non-compete clause in an employment agreement. But increasingly and in many jurisdictions the enforcement of a non-compete clause, where an employee agrees not to work for a competitor within a certain geographical location for a defined period of time, has become problematic at best.
We now see successful entrepreneurs addressing this problem proactively by using non-solicitation clauses in various agreements to keep their best employees on board without the use of restrictive employment non-compete agreements.
How to Keep Your Best Employees with a Non Solicitation Agreement
1. Employment Agreement Non Solicitation Clause
Successful entrepreneurs respect the fact that certain employees will move on. Such employees may not like the way the business is managed, or they simply may find greener pastures. The wise entrepreneur also recognizes there is a level of employee departure that is ordinary and not cause for alarm. However, it is also wise to protect your investment in employee development by preventing such departing employees from pilfering those who remain with the organization through the use of an employment agreement non solicitation clause.
An employment agreement non solicitation clause states that the employee agrees, during the term of his or her employment, and for a stated period of time after, to not directly or indirectly solicit for hire or create other forms of contractual relationships with remaining members of the entrepreneur’s business.
2. Confidentiality Agreements Non Solicitation Clause
Another use of a non solicitation clause focuses on when entrepreneurs open up their business affairs to outside parties, such as banks, vendors, suppliers, advisors, and others. Since an enormous amount of confidential information is shared between the parties, every entrepreneur should have in his quiver a ‘standard’ confidentiality agreement containing a non-solicitation clause which any third or outside party must execute before meaningful conversations about the business commence. Such use of a non-solicitation clause in a confidentiality agreement will protect the entrepreneur from outside parties soliciting for hire or creating other contractual relationships with employees.
3. Strategic Partnership Non Solicitation Clause
Unfortunately, not all conversations about potential strategic partnerships begin with the execution of a confidentiality agreement. Everyone is excited about the synergistic potential of a partnership and the parties begin to share information. If all goes well, a strategic partnership agreement is formulated and executed ultimately. But regardless of the presence or absence of a confidentiality agreement prior to execution, the strategic partnership agreement should always include a non-solicitation clause which prevents all parties from soliciting employees or creating relationships outside of the agreement for a specified period of time.
4. Letter of Intent Employee Non Solicitation Clause
When an entrepreneur sells his business, he typically receives a Letter of Intent from the prospective buyer. Letters of Intent are negotiable between the parties and its defined terms and conditions should serve as the platform from which the ultimate stock or asset purchase agreement is drafted.
Although most negotiations between a buyer and a seller of a business typically start with a confidentiality agreement, such agreements do not always include an employee non-solicitation clause. Accordingly, negotiating the employee non-solicitation clause into the Letter of Intent to buy a business is prudent as it will ensure the buyer won’t be soliciting the business’s best employees in the event negotiations fail.
5. Love Your Best Employees
Embedding a non-compete clause into an employment agreement to keep employees from working for the competition was the method of choice used by many entrepreneurs for several decades. Over time, entrepreneurs and employees alike have learned this method often caused more trouble than intended.
The use of non-solicitation clauses in an employment agreement coupled with their inclusion in agreements with outside parties protects the entrepreneur’s investment in developing productive employees. It also allows an employee the freedom to seek and work wherever he or she chooses.
The successful entrepreneur recognizes that a restrictive non-compete agreement with his employees is not necessary. In many cases, keeping the best employees from jumping ship may be accomplished simply by placing the employees’ interests first. It’s a golden rule that in many cases does the trick!
great post At Successful Transition Planning Institute, we use a confidentiality agreement around our IP. We will have to look at non-solicitation agreements as well. Thanks for posting this!