How to build Personnel and Non-Solicitation clauses

In this article, we have a look at some of the important aspects that must be kept in mind when drafting Personnel and Non-Solicitation clauses.

What is the purpose of a Personnel clause?

When Customers contract with Providers, they may want to deal exclusively with certain Provider employees.

It may be that they have established a good relationship with these employees, or they want to ensure that these employees are always involved when it comes to a certain Project due to their skills and expertise.

Therefore, the Personnel clause’s purpose is to detail these Key Personnel’s involvement.

What is the purpose of a Non-Solicitation clause?

A Non-Solicitation clause prohibits a Party from soliciting the employment of the other Party’s Key Employees.

These Key Employees may have unique skills; usually, a Party has spent time and money to upskill these employees.

From a Provider’s perspective, you want to ensure you have the resources to provide continuity of services to all of your customers and to prevent losses related to intellectual property, confidential information, and investments made hiring and training these Key Employees.

There are situations where a Customer may seek a Non-Solicitation clause to prevent a Provider from enticing people with industry knowledge or other marketable skills to benefit the Provider.

Building blocks of Personnel and Non-Solicitation Clauses

Building blocks of Personnel and Non-Solicitation clauses.

Key Personnel

The Key Personnel clause will need to address:

  • What is the process that must be followed if there is a transfer of Key Personnel
  • The succession plan
  • Key personnel working on competitor accounts
  • And can the Customer decide to remove Key Personnel from their account 

Data security training

Often human mistakes are the cause of data breaches.
For this reason, a Customer may want to ensure that the Personnel working their account that may have access to sensitive and confidential information regularly undergo data security training.

Personal checks & other requirements

A Customer that depends on a Provider to assist with especially Services of a financial nature may want to ensure that background checks be concluded on all Personnel working on their accounts.

Furthermore, depending on the transaction and Services to be provided, a Customer may want only to pay the agreed rates if they work with Personnel who must have certain qualifications or experience.

Key Employee definition

A wider definition of Key Employees may provide additional protection to the Provider. However, being more precise with your definition of Key Employees and referencing only Employees involved with the Services may increase the probability that a Court will enforce the provisions.

Here is an example of a definition for Key Employees:

any director, officer or senior employee in a key capacity of a Party or an Affiliate of it and any of their employees in a key position with regard to the performance of the obligations under the Agreement, at any time until completion of such obligations.

Non-Solicitation period

How long after the Agreement comes to end will the non-solicitation provisions still apply?

Industry practice may be a guide. But there is however no specific period that is regarded fair and reasonable. 

 

Damages

Parties may want to agree liquidated damages if there is a breach of the Non-Solicitation provision. For example, a percentage of the annual cost to company may be used or a fixed amount can also be agreed to.

Example clause

1.           PERSONNEL

1.1        Key personnel:  The following individuals are designated to the following positions as at the Start Date and must dedicate the below percentage of their time to the provision of the Services at the specified location:

Position

Name of individual

Percentage of time to be dedicated

Place of service

 

 

 

 

 

 

 

 

1.2        Transfer of key personnel:  A person holding a key position may not be transferred or re-assigned to other positions until a suitable replacement has been approved by the Customer.

1.3        Succession plan:  The Provider must establish and maintain an up-to-date succession plan for the replacement of individuals serving in key positions that shall be reviewed with the Customer on a regular basis.

1.4        Assignment of key personnel to competitor account:  For so long as an individual is assigned to a key position, and for 12 months thereafter, the Provider shall not assign such individual to perform services for the benefit of any competitor of the Customer.

1.5        Removal of key personnel:  At any time, and in Customer’s sole discretion, the Customer has the right to require that any individual assigned to a key position be removed from such position and replaced with another individual approved by the Customer.

1.6        Data security training:  The Provider must, at its cost, ensure that its personnel, on hiring and at least once a year afterwards, participate in data security awareness training, including at a minimum, Customer’s data security policies, including acceptable use, password protection, data classification, incident and breach reporting, the repercussions of violations, and overviews of applicable laws and regulations.

1.7        Personnel checks:  To the extent permitted by law and after obtaining the applicable consents from the affected personnel, before assigning any personnel to provide Services under this agreement the Provider must:

(a)          complete background checks on all these personnel, and

(b)          on the Customer's reasonable request, update any of these checks.

1.8        Contact information:  On or before the Effective Date, the Provider shall submit a list of contact names and telephone numbers to the Customer of its personnel and stand-by personnel.

2.           NON-SOLICITATION OF KEY EMPLOYEES

2.1        Non-solicitation:  During the Term of the Agreement, and for 12 months after the Agreement comes to an end, no Party may directly or indirectly solicit the other Party’s Key Employees.

2.2        Exclusions:  A Party will not be in breach of the above non-solicitation provisions if they hire or employ, or have hiring or employment discussions with any person:

(a)          who is not then employed by that other Party;

(b)          who contacts them without any solicitation by them; or

(c)          who responds to general solicitation for employment placed by them or their agents in newspapers, journals, the internet, recruiters, or any media.

2.3        Damages:  Should a Party breach the above non-solicitation provision, the soliciting Party, must pay to the non-soliciting Party within days of receipt of notice to that effect, the sum equal to 40% of the annual total cost to company of the relevant Key Employee.

2.4        Acknowledgement of pre-estimated damages:  The Parties agree that such damages contemplated above constitute pre-estimated damages to be suffered by the non-soliciting Party due to the breach of the non-solicitation provisions.

2.5        Survival:  The provisions of this Article – NON SOLICITATION OF KEY EMPLOYEES will survive the termination, expiration or cancellation of this Agreement.

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The Author

Martin Kotze is a commercial lawyer with over 10 years of experience. He specialises in transactional work within the Tech, Financial Services and Property industries. 

He is also one of the co-founders at DocNinja and regularly advises listed companies to small and medium enterprises on how to contract better with their customers. 

Martin Kotze

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