July 2009
Do Non-Solicitation Clauses Pose Conflicts of Interest?
by Charles H. Green on Monday, April 21, 2008 (post #282)
I would sincerely like to ask my professional services readers, and particularly those in the legal profession, for some help. I’m not being snarky or sardonic this time, this is a genuine request for perspective.
Professional services firms commonly have several clauses affecting relationships with their employees and subcontractors. The list includes non-competes, intellectual property restrictions—and non-solicitation clauses. It’s this last one I want to focus on.
Most such clauses boil down to something like “as long as you work here and for X time after you leave (typically up to two years) thou shalt not approach a client (or future client, or anything vaguely resembling one who ever breathed the same air as you) with the intent of selling work ‘similar’ to what you did for us.”
Or, in simpler terms: hands off--that client belongs to the company, not you, and we’ll sue if you try to steal ‘our’ client from us by doing what we hired you to do.
As you can tell, there is something that rubs me the wrong way about this. Yet I also have a feeling I’m missing something. Most things in life exist for a reason. I may be missing a big fat reason on this one.
Here are the arguments against such clauses, as I see them.
• Firms requiring this clause position their clients as property to be bartered over. The phrase “who owns the client” has to be somewhat offensive to the putatively owned client.
• There is an inherent conflict of interest with the principle of client service. Say an ex-employee or subcontractor develops a better product, at a lower price, offering greater value, and meeting a need clearly expressed by a client of the existing firm. Non-solicitation clauses mean the employing firm is preventing their client—to whom they are presumably devoted to giving great service—from even hearing of the potential better deal. This is a “dog in the manger” strategy. It may not be legal restraint of trade, but isn’t it a violation of basic client service principles?
But, what’s the other side? What’s the social rationale for non-solicitation clauses? Can someone offer an explanation of how they are, on balance, in the best interests of client, employer and employee together in the long run?
Thanks in advance for any enlightenment; I look forward to the dialogue.
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
posted in Building Trusted Advisors
Philip J. McGee said
www.mytruthsite.com
Non-Compete clauses, in my opinion, never consider the client. Further, my sense is that virtually all sales organizations consider themselves first with the client residing somewhere in second place, a close second in the better organizations and a distant second in the rest. The clue is in the title on the business card. Who do we think the representative is representing? I adore these new titles like Relationship Manager which seem to me to be just another nonsensical attempt to hide the truth that the seller thinks of him/herself first. Now I don't think that's a bad thing. It's just human nature and if we all admit it our transactions have a shot at becoming much more honest.
posted on Monday, April 21, 2008