What Is a Non-Solicitation Clause?
A non-solicitation clause is a contractual restriction that prohibits one party from actively recruiting or enticing away employees, customers, or suppliers of the other party for a specified period. In M&A, non-solicitation provisions appear in two distinct contexts: as employment restrictions (preventing the seller from poaching the target’s staff after the sale) and as deal protection mechanisms (preventing the target from soliciting competing bids, which is more precisely called a “no-shop clause”).
Non-solicitation clauses protect the buyer’s investment by ensuring that the intangible value of the acquired business — its human capital, customer relationships, and supplier network — is preserved after closing.
Employee Non-Solicitation
Purpose
After an acquisition, the seller (or the seller’s principals) may have the ability and incentive to recruit key employees of the sold business — people they have personal relationships with and whose capabilities they understand. An employee non-solicitation clause prevents this poaching, protecting the buyer’s most critical asset: the people who make the business work.
Standard Terms
| Parameter | Typical Range |
|---|---|
| Duration | 12-24 months post-closing |
| Scope | All employees, or limited to senior management and key personnel |
| Restriction | Cannot solicit, recruit, hire, or encourage to leave |
| Exception | General advertisements (job postings open to the public) |
Key Negotiation Points
- “Solicit” vs. “hire” — does the clause only prevent active recruiting, or does it prevent hiring even if the employee approaches the restricted party on their own?
- Scope of covered employees — all employees of the target, or only those above a specified seniority level?
- Exception for involuntary departures — can the restricted party hire employees who have been terminated by the buyer?
- Third-party recruiters — does the restriction extend to hiring through recruitment firms?
Customer and Supplier Non-Solicitation
Customer Non-Solicitation
Sellers who had personal relationships with the target’s customers are restricted from contacting those customers for a competing business:
- Protects the buyer’s revenue base
- Prevents the seller from starting a competing business and taking the customer book
- Often paired with a non-compete agreement
Supplier Non-Solicitation
Less common but used in industries where supplier relationships are critical:
- Prevents the seller from disrupting the target’s supply chain
- Protects exclusive or preferential supplier arrangements
Non-Solicitation vs. Non-Compete
| Feature | Non-Solicitation | Non-Compete |
|---|---|---|
| Scope | Restricted to contacting specific people/entities | Restricted from competing in a market/industry |
| Breadth | Narrower — targeted restrictions | Broader — blanket prohibition |
| Enforceability | Generally easier to enforce | Subject to reasonableness scrutiny |
| Duration | 12-24 months | 12-36 months |
| Impact on seller | Can work in same industry, just cannot poach | Cannot work in same industry at all |
Courts generally view non-solicitation clauses more favourably than non-competes because they are narrower restrictions on the seller’s economic freedom. A seller can start a competing business but cannot recruit the sold company’s employees or solicit its customers.
Enforceability
Non-solicitation clauses must be reasonable to be enforceable:
- Reasonable duration — typically 12-24 months; longer periods face scrutiny
- Reasonable scope — must be limited to specific, identifiable people or relationships
- Legitimate business interest — must protect a genuine interest (customer relationships, trade secrets, training investment)
- Not overly burdensome — must not unduly restrict the restrained party’s ability to earn a livelihood
According to the American Bar Association’s Private Target M&A Deal Points Study, approximately 80% of US private M&A deals include employee non-solicitation provisions, and approximately 70% include customer non-solicitation provisions.
APAC Context
Australia — non-solicitation clauses in Australian M&A are enforceable if they protect legitimate business interests and are reasonable in scope, duration, and geography. Australian courts apply a restraint of trade analysis, and clauses that are too broad may be struck down entirely (unlike some US jurisdictions that can “blue-pencil” unreasonable clauses).
Hong Kong — Hong Kong law recognises the enforceability of non-solicitation clauses that are reasonable restrictions protecting trade connections, trade secrets, or workforce stability. The courts apply English common law principles, with the burden on the party seeking to enforce the clause to demonstrate its reasonableness.
India — Section 27 of the Indian Contract Act 1872 renders void any agreement in restraint of trade, with limited exceptions. Non-solicitation clauses are more likely to be enforceable than non-competes in India because they are viewed as less restrictive. However, the blanket prohibition in Section 27 creates uncertainty, and Indian courts evaluate these clauses on a case-by-case basis.
Singapore — Singapore courts enforce non-solicitation clauses that are reasonable in scope and duration. The Employment Act provides the baseline framework, and courts have upheld non-solicitation periods of up to 12-18 months in the M&A context.
“Non-solicitation clauses are the buyer’s first line of defence against value leakage after closing,” observes Daniel Bae, founder of Amafi. “In APAC, where many businesses are deeply reliant on personal relationships between founders and customers, robust non-solicitation protections are essential.”
Protecting M&A value across Asia Pacific? Amafi helps structure post-closing protections and retention mechanisms. Learn more.