Understanding NDAs: The Non-Solicitation Clause for Directors, Officers, and Employees

Introduction

Non-Disclosure Agreements (NDAs) are standard legal instruments used to protect confidential information in business transactions. While their primary purpose is to prevent the misuse or disclosure of sensitive information, NDAs often contain non-solicitation clauses that restrict the hiring or solicitation of employees, directors, and officers of the disclosing party.

For recipients of confidential information, these clauses can create unintended hiring restrictions if not carefully negotiated. Furthermore, in the European Union (EU), non-solicitation provisions must be assessed in light of competition law, particularly regarding anti-competitive no-poaching restrictions.

This article examines key issues with non-solicitation clauses in NDAs, what the recipient should watch for when negotiating these provisions, and how non-solicitation clauses interact with EU competition law.

1. Who Should Be Restricted?

A non-solicitation clause should be narrowly tailored to apply only where necessary. Overly broad restrictions can limit hiring activities unfairly and may be unenforceable.

(a) Avoid Blanket Application to All Representatives

Some NDAs extend non-solicitation restrictions to all Representatives of the recipient.
This is excessive because the recipient does not control all Representatives, such as external lawyers, accountants, or consultants and such Representatives would usually not be interested in hiring the disclosing party’s employees.
Representatives who do not hire employees should not be subject to non-solicitation restrictions.

✅ Negotiation Tip: The restriction should only apply to the recipient and affiliates that actually received confidential information.

(b) Should Affiliates Be Included?

Some NDAs automatically extend non-solicitation obligations to all affiliates of the recipient.
If the recipient is part of a large corporate group or a private equity fund with portfolio companies across different industry sectors, this could unfairly restrict hiring across multiple businesses.

✅ Negotiation Tip: Limit the restriction to affiliates that actually received confidential information and had meaningful exposure to key personnel.

2. Scope of the Restriction

(a) Employees Should Only Be Covered If the Recipient Had Direct Contact

Some NDAs restrict solicitation of all employees of the disclosing party, which is overly broad.
If the recipient never interacted with an employee, they should not be subject to non-solicitation.

✅ Negotiation Tip: The restriction should only apply to employees with whom the recipient first had direct contact in connection with the transaction.

(b) Anonymized Employee Lists Should Not Trigger Non-Solicitation Obligations

Some companies provide anonymized structure charts or employee lists as part of due diligence.
If the recipient never met or spoke with these employees, they should not be restricted from hiring them.

✅ Negotiation Tip: Ensure that simply receiving a list of employees does not trigger the restriction—actual direct interaction should be required.

(c) How Should Solicitation Be Defined?

Some NDAs use vague terms like 'indirect solicitation,' which could restrict:

❌ Using recruitment agencies.

❌ Hiring someone through a mutual connection.

❌ Simply discussing job opportunities informally.

✅ Negotiation Tip: Ensure the clause defines 'solicitation' as direct, intentional recruitment efforts (including directing third parties to solicit) - not incidental hiring or general job postings.

3. Interaction with EU Competition Law: No-Poaching Restrictions

(a) Why Is This Important?

EU competition law prohibits agreements that restrict competition, including those affecting the labour market.
Non-solicitation clauses can resemble anti-competitive no-poaching agreements if they unreasonably restrict hiring.
The European Commission (EC) and national competition authorities have increased scrutiny on non-poaching agreements.

(b) What Is a No-Poaching Agreement?

A no-poaching agreement is when two companies agree not to hire each other’s employees.
This is considered anti-competitive because it restricts labour mobility and keeps wages artificially low.

✅ Competition Law Concern: If a non-solicitation clause in an NDA operates like a no-poaching agreement, it could violate EU competition law.

4. How to Ensure a Non-Solicitation Clause Complies with EU Competition Law

To avoid breaching EU competition law, a non-solicitation clause must be:

✅ Limited in Scope: The restriction should only apply to employees who are directly involved in the transaction.

✅ Time-Limited: The restriction should not last indefinitely. A 12–18 month restriction is standard.

✅ Legitimately Justified: The clause should be necessary to protect confidential information, not to prevent competition in hiring.

✅ Not a Mutual Agreement Between Competitors: If two competitors agree not to solicit each other’s employees, this is highly risky under EU competition law.

✅ Reviewed by Legal Counsel: Companies should seek legal advice to ensure that their NDAs do not violate EU antitrust rules.

5. Practical Negotiation Strategies

A reasonable non-solicitation clause should include carve-outs for:

✅ Unsolicited Applications: If an employee applies on their own, the recipient should be free to hire them.

✅ General Recruitment Activities: Public job postings, career fairs, and agency-led hiring should be excluded.

✅ Pre-existing Relationships: If an employee had a prior connection with the recipient’s company, they should be excluded from the restriction.

✅ Affiliates & Representatives: The clause should only apply to those who actually received confidential information.

6. Conclusion

Non-solicitation clauses in NDAs can create serious hiring restrictions if not carefully reviewed. As the recipient of confidential information, you should:

✔️ Ensure the restriction applies only to those who actually received confidential information.

✔️ Limit coverage to employees the recipient directly interacted with.

✔️ Negotiate a reasonable duration (6–12 months is standard).

✔️ Avoid broad geographic and business scope.

✔️ Ensure compliance with EU competition law by avoiding mutual no-poaching agreements.

By carefully reviewing and negotiating these clauses, businesses can protect themselves from unintended hiring restrictions and potential legal risks under EU antitrust law. Always consult legal counsel to ensure compliance.

🔗 Check out the previous part of this series on the confidential obligations of recipients of confidential information:

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