Friday, January 30, 2015

No-Hire Provisions Are, For Some Reason, Drafting Nightmares

In the course of reviewing, say 5,000 restrictive covenants (the job can be a wee bit tedious at times), one drafting problem continually amazes me.

Restrictions imposed on employees from hiring away fellow employees appear to vex and confound those who draft contracts.

I've never quite understood this, but it's true. While it seems easy enough to draft non-compete restraints, for some reasons the same doesn't hold true for no-hire covenants.

Here's how I draft no-hire covenants in my model employment contract:

The Employee agrees that during the Restricted Period he will not solicit, hire, or induce a Restricted Employee to leave his or her employment with the Company to join a person or entity that provides similar products or services as the Company offers to others at the time of the Employee's departure.

I then define the terms "Restricted Period" as the duration of employment plus a reasonable post-termination period (say, a year). I define "Restricted Employee" as someone with management, sales, or product development responsibility (or as the client otherwise may choose in the proper case).

The bold-faced clause above is really important, or the covenant protects activity that is innocuous or could not lead to competitive harm. This is the piece I often see missing.

Below is a real beauty from a dispute I am negotiating right now for an employee (I am taking editorial liberties by deleting or revising the unnecessary legal jargon and the misspellings of commonly used words):

During Employee's employment and for two years after the end of employment, Employee shall not accept employment of any employee of Employer.

Worded terribly, this restriction only could apply in a very narrow fact-pattern. But it is not tethered to any competing work, so it's both underinclusive and overinclusive - a real achievement, if you ask me.

Reading, as I sometimes am apt to do, through recent non-compete decisions, I stumbled upon Base One Techs., Inc. v. Ali, 2015 U.S. Dist. LEXIS 5821 (D.D.C. Jan. 20, 2015). The district court dismissed a no-hire claim against two employees who the employer accused of soliciting each other to quit. (Pause to consider how to prove damages or even liability on that one.) The court confronted a covenant similar to the example I just gave, and it read (again, modified for my readers' ease):

Employee agrees not to solicit, contact, represent or offer to represent the Company's Full-Time Employees or Independent Contractors, whether or not such solicitation, contact, or offer was initiated, prompted, or in any other way developed by the Employee...


People draft agreements like this. They really do. The court was unimpressed and found that a vague and ambiguous restrictive covenant was, on its face, unenforceable. The court's particular concern was that the contract never said what conduct the employee could not solicit: "Is the employee prohibited from contacting another employee about health insurance? From soliciting another employee to attend a political fundraiser." When a court asks rhetorical questions in an opinion, that usually is a bad sign.

I believe that when attorneys start drafting contracts, every good and normal human instinct they have disappears. They are flummoxed by how to convey a relatively simple thought. They cram 75 words into one sentence. They liberally use subordinate clauses. They feel the need to use a series of three verbs for the exact same thing ("...solicit, entice, or take away..." or my favorite "...give, devise, and bequeath."

A judge once told me that a restrictive covenant should be understandable to a mildly intelligent 7th grader. I cannot say it any better than that.

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