Non-solicitation clauses in M&A transactions

11 October 2023 | Knowledge, News, The Right Focus

Every manager and business owner knows the importance of people and talent in an organisation. In M&A (mergers & acquisitions), the human factor also plays a crucial role. One of the main motivations for M&A transactions is to gain value from the acquisition. And behind this are usually the people who are guaranteed to further enhance the performance and value of the business.

People: the most valuable asset in business

Among the risks that can arise in an M&A transaction is the risk of poaching key employees and other individuals critical to the operation of the acquired business. This risk is all the greater as the deal may ultimately fail and the potential buyer, having access to the critical personnel of the divested business, may seek to persuade them to consider cooperation, thereby inducing them to leave the current business.

The seller, left with an unsold business that has lost its most valuable employees, may therefore have a very serious problem. Both in running the business and in attracting new buyers.

What you need to know about non-solicitation clauses

One way to mitigate this risk is via a non-solicitation clause, which provides that the buyer will not solicit or encourage the employees and associates of the divested business to terminate their relationship with the seller. For such clauses to be effective, they must be properly incorporated into the contract and properly secured, e.g. via liquidated damages for any breach.

Non-solicitation clauses should be carefully drafted, with their manner of incorporation in the contract depending on which party has more influence over the final content.

From the seller’s point of view, a non-solicitation clause should have a broad scope, i.e. it should restrict the potential solicitation of employees and associates of the seller’s business to join the buyer or its related parties.

On the other hand, from the buyer’s perspective, it is important that any non-solicitation clauses do not prohibit instances where the employees of the divested business themselves terminate their existing relationship with the business on their own initiative and either approach the buyer for employment or respond to a general recruitment advertisement.

Non-solicitation & non-compete

Non-solicitation clauses may also include a prohibition on soliciting customers, suppliers and other business partners of the divested business or the seller and in this respect are closely related to non-compete clauses concerning the non-competition of the buyer.

In the case of non-compete clauses, it is important to draft the relevant contractual provisions carefully and to ensure that they are respected.

Any questions? Contact us

Paweł Mardas

Latest Knowledge

Liability of management board members

The liability of management board members is a complex and multifaceted issue. It is therefore worth taking a closer look at these issues, especially in light of recent developments.

Effectively managing collective redundancies

The labour market is seeing an increased number of collective redundancies. We check what rules govern collective redundancies and what obligations must be fulfilled in order to carry them out effectively.

SME Fund – Tomasz Szambelan accredited IP Scan provider

Tomasz Szambelan has been included in the list of accredited IP Scan providers maintained by the Polish Patent Office. The IP Scan service is part of the grant scheme for the filing of trade marks, designs and inventions from the European SME Fund.

New rules for setting fines for businesses by the President of UOKiK

At the beginning of April 2024, the President of the Office of Competition and Consumer Protection (UOKiK) published new clarifications on the determination of the amount of fines in cases related to the conclusion of agreements restrictive of competition and the abuse of dominant position.

Contact us: