Should we require non-compete and non-solicitation agreements for partners and employees?

What is actually at risk

The employee loyalty chapter of the 2020 book quotes what institutional investors say about professional services firms: all your assets walk out the door each night. It says boutiques must prove the assets that leave each night come back in the morning, and that in professional services your people are your product.

The legal essay in the newer book describes what happens when nothing protects those assets. Founders of early firms hire with basic offer letters, informal contractor arrangements and borrowed documents. Common gaps include no confidentiality or invention assignment agreements, no non-solicitation or non-compete protections where enforceable, and no clarity on who owns client work, methodologies or intellectual property. The predictable consequences it lists include expensive employee disputes and key employees quitting and taking clients, taking other employees, taking intellectual property and opening competing firms. Its conclusion is that this is how enterprise value leaks out of professional service firms without a single lawsuit being filed.

What the standard looks like

The essay describes the standard for an AI-native firm as removing ambiguity rather than eliminating people risk. It lists what should be standardized and enforced: offer letters and employment agreements, confidentiality and invention assignment agreements, non-solicitation and non-compete provisions with jurisdictional awareness, and clear ownership of all client work and internal tools. For contractors it lists correct classification, contractor agreements, assignment of intellectual property, confidentiality and non-solicitation.

As an inference, the phrase with jurisdictional awareness carries most of the answer. Whether a non-compete can be enforced, and on what terms, depends on where your people work, and the rules change. That is a question for an employment lawyer, not for a template. Non-solicitation, confidentiality and assignment of work are separate protections, and each should be considered on its own rather than bundled into a single yes or no.

Start with what the firm owns

The legal essay says intellectual property is formally assigned to the entity, always, and calls for clear ownership of all client work and internal tools. The contracts and IP answer on this site applies that to the prompts, workflows and agents people now build with AI. As an inference, this is the protection founders most often skip and the one least affected by the enforceability questions around non-competes. If the firm does not clearly own its methods, a departing employee can take them openly, whatever a non-compete says. Fix ownership and confidentiality first, then decide on the restrictive clauses.

Partners are different from employees

The essay treats partner protections as part of governance rather than employment. It says operating or shareholder agreements should cover vesting and repurchase rights, buy-sell provisions, partner admission and exit rules, deadlock resolution and transfer restrictions, and that intellectual property is formally assigned to the entity, always. It says that for multi-partner firms this prevents value-destroying conflict.

As an inference, restrictions on a departing partner belong in the same document as the terms on which the partner is bought out, because the two are connected: what the firm pays for a departing stake and what the departing partner may do next are negotiated together. The buyback and minority holders answers on this site cover those agreements.

Why buyers care

The comparables chapter of the 2020 book lists a three-year non-compete from the seller as a typical deal term, alongside earn-outs and the warranty period. The managing interest chapter adds that a dollar amount is assigned to the seller non-compete and taxed as ordinary income rather than capital gains, and says the author did not know this at the time of his sale until his advisers negotiated it down.

The shareholder and stakeholder alignment chapter records the risk on the employee side. A founder selling his firm had let a few key employees buy small stakes. The buyer required those employees to stay after the sale, with employment contracts that included a three-year restrictive covenant agreement with non-compete and non-solicitation clauses. The employees refused to sign and held the owner hostage with demands, and the sale collapsed. The chapter lesson is that alignment must be in place long before an offer.

As an inference, a firm that already has sensible, enforceable agreements in place, signed when people joined, gives a buyer less to ask for at the moment people have the most leverage.

Contracts protect; loyalty retains

The employee loyalty chapter is clear that agreements are not the main defense. It describes a firm with 40 percent annual turnover that was passed over in diligence, where former employees cited unclear roles, burned-out stars, no sense of purpose, meaningless reviews and below-market pay. It tells founders to assume every former employee will be contacted during due diligence, and it ends by saying owners work for their employees, not the other way around.

As an inference, a non-solicitation agreement can slow a departing employee from taking clients and colleagues, but it cannot make a good person stay or a client want to remain. The turnover answer on this site covers the conditions that keep people. Treat the agreements as protection for the firm and the work on loyalty as the actual retention plan.

Introduce them carefully

As an inference, adding restrictive agreements for people who are already employed is more sensitive than including them in offers to new hires, and in some places it raises legal questions about what the employee receives in return. Explain why the firm is asking, make the terms proportionate to the role, and take advice before asking current staff to sign. The telling the team answer on this site covers sequencing a change like this inside the firm.

What we do not prescribe

Collective 54 is not a law firm and gives no legal advice. It publishes no agreement template, restriction length, geographic scope or view on enforceability in any jurisdiction. The published positions are people as the product, the gaps of no confidentiality, assignment, non-solicitation or non-compete protections, key employees leaving with clients, colleagues and intellectual property, enterprise value leaking without a lawsuit, standardized agreements with jurisdictional awareness including for contractors, partner terms in the governing agreements, the seller non-compete as a deal term and its tax treatment, the sale lost over restrictive covenants, and loyalty as the real test buyers apply.

When this answer flips

If a non-compete is not enforceable where your people work, as an inference, confidentiality, assignment and non-solicitation protections become the main tools, and the loyalty work matters even more.

If you are within a year or two of a sale, take advice early, because the 2020 book shows how late requests for restrictive covenants can give key people leverage over the deal.

And if the people you worry about most own equity, the terms belong in the ownership agreements, not only in employment documents.

The short answer

Have an employment lawyer decide what is enforceable where you operate, because Collective 54 gives no legal advice and the rules vary. Do not leave it open: the legal essay says missing confidentiality, invention assignment, non-solicitation and non-compete protections are how key people leave with clients, colleagues and intellectual property, and how value leaks without a lawsuit. Standardize the agreements for employees and contractors when they join, put partner restrictions in the ownership and buy-sell agreements, and remember that buyers ask for restrictive covenants at a sale. Then do the harder work, because the 2020 book says loyalty, not paperwork, is what keeps people.