Non-solicitation agreements for independent contractors explained

Non-solicitation agreements for independent contractors explained

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Introduction

Employees come and go no matter how important they are to a company. Seeing them leave for a competitor might sting. You want to ensure they don’t convince their work friends to leave or their clients to join them. This is where a non-solicitation contract comes into play.

This document can help you avoid losing crucial company information and resources when an employee or contractor leaves your company. You’ll discover what a non-solicitation agreement is, why and when you should use one, and examples of solicitation in this article.

What are non-solicitation agreements?

Non-solicitation agreements are contracts that an organization presents to an employee or contractor stating they cannot solicit clients or staff.

This agreement means that the employee or contractor can leave your organization. However, they need to convince clients, including the ones they brought to the company, to join them. It also means that former employees or contractors need to convince your staff to join them at their new place of employment. It’s a legally binding contract that you can present to employees at any point during employment.

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Why do companies use non-solicitation agreements?

Many companies, especially large corporations, use this agreement when they hire employees or contractors, and here’s why you should as well:

To retain clients

Companies always compete fiercely to land some of the top local and international clients. They spend large sums and adjust their company policies to accommodate certain clients. Meanwhile, some break the bank to hire professional brokers to manage some clients.

These make clients even more valuable to a company. Besides top clients, businesses don’t want to lose everyday consumers either. Retaining new customers is five times more expensive than keeping existing ones. Losing them would not only make them lose future earnings but may also influence other clients to leave.

To secure intellectual property

A non-solicitation agreement often forms part of a non-disclosure agreement. It keeps employees and contractors from using any concept, design, or product for any other entity.

During deliberations, employees may contribute ideas that could make the business a fortune. This might cause some employees to assume they have the right to use these concepts wherever they go.

Securing your IP can be even trickier when dealing with a contractor. The Intellectual Property Rights Agreement permits you to take any legal action necessary if workers breach this agreement. However, this might be an unnecessarily lengthy procedure. You can prevent this by having them sign a non-solicitation clause for an independent contractor.

To avoid giving competitors an advantage

No company wants its rival to have the slightest edge over them. Some may go as far as looking for ways to put rivals out of business for good. Companies invest resources and money to have the upper hand. Without a non-solicitation agreement, an employee or independent contractor may hand over a business’s most prized assets to competitors.

To avoid losing employees

Some employees are vital to the growth of a company, especially those who bring in top clients or manage major accounts. Although signing a non-solicitation agreement is to retain clients, it can discourage top employees from leaving. For instance, if an employee plans to leave the company to establish a business with some of its top clients, the non-solicitation contract hinders them.

The disappointment could make such employees remain at the company for much longer. Similarly, some employees looking to start their own company or work for another may want to poach their co-workers. Making them sign this agreement can help you retain your workers.

When is the best time to use non-solicitation agreements?

Now that you know why a company should use a non-solicitation agreement for an independent contractor, you should know the best time to unleash it. Although a step in the right direction, use this agreement in these scenarios:

Your employee works directly with clients

Some employees’ duties involve meeting and collaborating with clients on behalf of the company. It’s common in marketing, construction, HR, or sales. Often, an employee may have more influence on clients than the organization.

For instance, when skilled employees open accounts for public figures or celebrities, they may strike a cordial relationship outside work. This makes the client loyal to the employee and not the company. Thus, you’re almost certain the employee would take the client with them if they leave your organization. Having them sign a non-solicitation agreement is your best chance of keeping your clients.

An employee is crucial to your business

There’s always a handful of employees who make everything tick. The moment they establish themselves as nearly indispensable, prepare a non-solicitation agreement. Usually, essential employees know the ins and outs of the company, including trade secrets and future projections. Their long billable hours, the clients they bring, and the ideas they contribute make them valuable.

While they’re still with you, they’re an asset. Meanwhile, they may become your greatest liability if they leave with too much information. Thus, ensure they can’t use any information or resources with their new employers.

An employee is gaining recognition in the industry

When an employee is gaining positive attention, it’s a sign that they must be doing a great job. However, an employee who catches the eye of virtually every employer can be easily swayed by better offers. Stopping them from leaving your organization might be a waste of time if the offer is too good to turn down.

The least you can do is protect your assets. That’s when you may consider using this agreement to ensure the employee doesn’t take all the success with them.

You hire independent contractors

More companies are hiring contractors. The number of contractors in the United States increased from 12.9 million in 2017 to over 23 million in 2021. Keeping your intellectual property and clientele secure is trickier when you hire an independent contractor. It’s easy for contractors to apply knowledge from the information you share when working for other employers.

This is why using an independent contractor non-solicitation agreement is crucial to avoid giving competitors an edge over you. Hiring and managing independent contractors can be much easier with the help of a global hiring platform like Skuad. We’ll ensure that your non-solicitation agreement is air-tight and bear the risks for you.

Employee considering resigning

The “great resignation” is causing people to look for better job opportunities or start a business. If an employee aims to start a business after resigning, it’s often in the same industry, making them potential competitors. Having enough information and being on good terms with clients makes it easy for them to convert these assets into theirs.

Ensure that the agreement is air-tight and that the employee cannot use your information, including the ideas they pitched while working for you. Likewise, ensure they cannot poach your clients, especially the accounts under them.

Features of a non-solicitation agreement

Before you make a non-solicitation agreement, ensure it contains the following:

  • Contract duration: A legally binding agreement must have a date. Specify the duration of the agreement or when it ends. Non-solicitation agreements for employees last two years. This enables them to continue their career with no pending legal issues.
  • Reasonable clauses: Contracts can have clauses provided that they disclose and explain them. When adding certain conditions, ensure they are reasonable. It makes it easier for the other party to agree to them. For instance, conditions that imply that employees cannot establish a business or get a new job within the same province can be discouraging.
  • Location the agreement holds: When preparing the agreement, indicate a specific location where the agreement applies. It’s best to name a city or province where former employees cannot solicit clients or other employees.
  • Clear definition of terms: This agreement should exclude ambiguity like any other legal contract. Ensure you clearly define terms such as solicitation, employee, employer, client, property, and asset. Besides definitions, ensure the contract is easy to read and comprehend. If the agreement only applies to certain levels or hierarchies of employees, state it.

Examples of solicitation by a contractor

If you’re already considering preparing a non-solicitation clause for an independent contractor, examples can help you identify early signs of solicitation.

For example, you hire an independent contractor to work with your in-house team on a copywriting project. After the project, they receive their commission and return to their office while your employees remain with you. Perhaps they decide to set up their own copywriting company and begin to call your employees to offer them a job. This is solicitation, and it violates your agreement.

It’s also solicitation if the contractor went after your clients instead. For example, after getting their commission, they contacted the clients you paid them to write copies for via email to offer their services. A non-solicitation agreement would prevent this from happening.

Secure your assets with Skuad

Having employees or contractors sign a non-solicitation agreement can help to retain your best employees and major clients. A global employment and payroll platform like Skuad can guarantee world-class global hiring services for employees and independent contractors worldwide.

We operate in over 160 countries with an excellent understanding of international and local employment laws, legal documents, and hiring procedures. Let us help you take care of the legal paperwork to ensure the non-solicitation of your assets. Request a demo today to discover how Skuad can secure your company information and simplify independent contractor management for you.

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