In a Brazilian transaction, the departure of a key executive taking part of the team and client base along can cost more than any price adjustment, and this often happens within the loopholes of the non-solicitation clause itself.
That is why this clause has become indispensable as a value protection mechanism, especially in significant transactions such as M&A deals, shareholders’ agreements, joint ventures, and strategic contracts. For foreign investors acquiring or partnering with Brazilian companies, the point is particularly relevant: in many Brazilian businesses, including family-owned groups, client and supplier relationships are closely tied to founders and a small circle of executives. More than preventing the hiring of people or the capture of clients, the clause serves as an instrument for preserving intangible assets.
We highlight below the 5 most relevant points to negotiate:
1. Scope: Solicitation does not refer only to clients, and this point is often overlooked at the time of contracting. It is essential to establish who falls within the scope of protection, which may include executives and key people for the business, clients active during a given period, qualified leads, and strategic suppliers.
2. Duration: Beyond setting how long the obligation lasts, the clause must objectively establish when the restriction begins and when it ends, whether upon signing, upon closing of the transaction, or upon the departure of a partner or executive. Brazilian law has no specific statute on non-solicitation, so courts assess these clauses mainly on the basis of reasonableness. A frequent reference point is the five-year period the Brazilian Civil Code sets as the default non-compete restriction when a business is sold.
3. Defining the act of “soliciting”: Another sensitive point is detailing the practices that will be prohibited. This can be done through an illustrative list or by specifying particular acts. The clause should make clear whether a mere attempt is enough to constitute a breach, whether the prohibition covers both direct and indirect actions, and to what extent it reaches third parties connected to the parties, such as group companies, partners, or intermediaries. In Brazil, where freedom to work is a constitutional guarantee, the restriction should fall on the party that actively approaches employees, not on the professional’s right to accept a new position. For this reason, creating exceptions, such as for unsolicited applications, does not weaken the protection; on the contrary, it reinforces its legitimacy and reduces the risk of challenges.
4. Verification and monitoring mechanisms: An obligation is only effective if compliance can be verified, and solicitation tends to happen discreetly, through informal conversations and indirect contacts. For this reason, it is worth providing for practical mechanisms, such as a duty to inform the other party of any hiring of people connected to the company during the restriction period, or the ability to request clarification in case of well-founded suspicion.
5. Consequences of breach: The effectiveness of the obligation depends on clear and proportionate penalties. Penalties may be set at a fixed amount or calculated based on objective parameters, such as the revenue generated by the solicited client or the annual compensation of the hired professional. The penalty need not reflect only the breach itself, but also the resulting harm, and the contract should make clear whether it replaces or is in addition to compensation for damages.
Integrated with confidentiality and non-compete clauses, the non-solicitation provision ceases to be an abstract commitment and becomes a robust instrument of corporate governance, especially when its focus is less on restricting individual movements and more on preserving the integrity of the company’s relationships with partners and clients, thereby reducing disputes and preserving the company’s value.
