The Recruiter’s Guide to Understanding Non-Soliciation, Non-Compete, and Non-Disclosure Agreements

Saper Law Offices assists a wide variety of businesses in the technology industry.  The following article is geared to the technology recruiting industry and serves as an overview of several types of employment and recruitment-related contracts that in-house recruiters or third party recruiting firms may encounter.  If you are an HR professional, a recruiter, or an employee seeking further advice on these topics, please call Saper Law Offices for a consultation at (312) 641-0551 or contact us by email at dsaper@saperlaw.com.

The recruiting industry plays an important role, bringing companies together with the competent and highly qualified individuals they desire.  It is important that recruiters fully understand the contracts they will encounter during the recruitment process before they attempt to match their clients with certain candidates. This article will address three of these important contractual agreements: non-solicitation agreements, non-compete agreements, and non-disclosure agreements. Though they are all related, there are important distinctions between these agreements that one must understand to determine how best to proceed in different circumstances.

 

Non-Solicitation Agreements

A non-solicitation agreement is a contract between a recruiter and a client stating that the recruiter will not recruit any of the clients’ employees for employment elsewhere. A non-solicitation agreement also typically states that if a recruiter has placed a candidate with a company, the recruiter agrees not later to “re-recruit” or entice the candidate to take a different job with another company. The scope of a non-solicitation agreement will vary depending on whether the recruiter is retained by a company or works on a contingency basis.

Retained Searches

A recruiter retained by a company works under a formal “retained agreement” where the company specifically hires a recruiter to fill a particular, typically higher-level, position in the company. The company typically pays a large, nonrefundable deposit up front and continues to pay the recruiter throughout the search, whether or not the position is ultimately filled. The relationship is formal and exclusive, with duties and rights well defined in the retainer agreement. The recruiter also owes the company duties of loyalty and due care during the recruitment process. Non-solicitation agreements will almost always be much stronger and longer lasting for retained recruiters, whether they can fill the company’s positions or not.

Contingent Searches

Recruiters hired on a contingency basis have a different relationship with the company. The contingent recruiter is only paid when a candidate is placed with the client company. There is no commitment between the recruiter and the company, as they are enlisted on a non-exclusive basis. Contingent recruiters are not assured payment unless they make a successful placement and may move on to other searches if the current search becomes unprofitable. When the recruiter does not place a candidate with the client company, no money changes hands, and there is no contractual relationship. If no non-solicitation agreement is made between the contingent recruiter and the company, the recruiter is free to contact the company’s other employees to fill positions for other clients, even while they are trying to fill a position for the company. With contingent recruiters, a the non-solicitation agreement will typically not last as long as it would in a “retained agreement.”

Non-Compete Agreements

A company will sometimes require a new employee to sign a non-compete agreement. In a non-compete agreement, the new employee agrees not to pursue employment in the same or similar capacity, or perform the same duties and job function in a similar field or profession, in direct competition with the original employer. Non-compete agreements affect recruiters because a potential candidate may have signed such an agreement with his or her current employer. A recruiter cannot place a candidate in a new job if doing so would violate a valid non-compete agreement. However, just because there is a non-compete agreement in place, doesn’t necessarily mean that the agreement is valid and the candidate is off limits.

A non-compete agreement must strike the right balance to be effective. If it is too restrictive, a court may strike it down as unreasonable and overly burdensome. If it does not give enough detail about the restrictions, another company may take advantage of loopholes to get around the agreement. Non-compete agreements must be reasonable both in time and scope. Reasonableness means that the agreement generally should not be enforceable for more than one year after termination of employment, and should be limited to the similar jobs in the same field of employment. Any geographical restriction should be limited to areas bearing a relation to where the employee actually does business. An agreement that is reasonable in scope and duration should be sufficient for a company to protect its business and goodwill, while giving recruiters and candidates the freedom to pursue their own business opportunities without being unduly burdened. If the agreement exceeds these boundaries, it will likely be considered null and void, leaving the employee free to explore other opportunities, whether in direct competition or not.

Non-Disclosure Agreements

A non-disclosure agreement is another agreement that may come up in the recruitment process. A client company may require the recruiter to sign a non-disclosure or confidentiality agreement, agreeing not to share any confidential or sensitive information about the company to outsiders. Recruiters must learn enough about their clients to match them with the most qualified individuals, and in doing so may learn valuable ideas and information from the company. The non-disclosure agreement gives client companies some protection by keeping recruiters from passing on sensitive information to potential candidates unless and until the candidate is placed in the company. It also aids client companies by keeping recruiters from sharing any sensitive information with the companies’ competitors who may also be the recruiter’s clients.

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Each of the above agreements helps set boundaries for what companies, recruiters, and candidates are allowed to do during the recruitment process. It is essential for recruiters to understand these agreements so that they can continue doing business without crossing legal or ethical boundaries. The relationships between recruiters and their client companies or between candidates and their current employers vary because different parties have different needs. These agreements play an important role in determining the scope of what can and should occur during the process and will help each party reach its desired result – money for the recruiter, and a highly qualified candidate for the client company.

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