Non-Solicitation Agreements in Business Contracts
Two of the most important people to any business are customers and employees. Someone who steals away business customers or employees is stealing something valuable to that business. In most states, that theft can result in a lawsuit, especially if the thief solicits those customers or employees.
To prevent theft of customers and employees, many businesses require top-level executives and key managers and directors to sign a non-solicitation agreement.
What is a Non-solicitation Agreement?
A non-solicitation agreement restricts an individual (usually a former employee) from soliciting either (a) employees or (b) customers of a business after leaving the business. Non-solicitation language can come in the form of an entire document or a clause within another document, like an employment agreement or independent contractor agreement.
Non-solicitation Agreements as Restrictive Covenants
The non-solicitation is one of three types of restrictive covenants, the other two being non-compete agreements and non-disclosure (confidentiality) agreements. All three attempt to restrict or force someone not to do something, either during the time of employment or after. To be enforceable, they must have reasonable limits in terms of time, area, and types of work.
Non-solicitation Agreements for Employees
Good employees are difficult to find, and a company may have spent many years training a valuable employee. The employer wants to prevent another employee from leaving the company and soliciting that valuable employee to leave and join the new company.
Joe is leaving his job at XYZ company. He has a great administrative assistant, and he tries to solicit her to come with him. If he has signed a non-solicitation agreement, he may not be able to do that without risking a breach of contract lawsuit. This solicitation of employees might also be required in the case of the sale of a business. Sharon has sold her holistic health practice, and she tries to take her office manager with her. Same deal: that's solicitation.
Non-solicitation Agreements for Customers
In the same way, an employer may want to prevent a former employee from soliciting customers to draw them away from the business. This situation happens in sales and also in professional practices, with clients or patients.
If Joe is a salesperson for XYZ Inc., he may have taken his list of contacts. If he tries to contact them, he could be sued for solicitation. And if Sharon tries to solicit customers of her former business, same deal.
The Issue of Direct vs. Indirect Solicitation
Most solicitation agreements include restrictions on both direct and indirect solicitation. What's the difference? Direct solicitation is just what it sounds like. An employee who is leaving your company calls a client and says, "I'm leaving XYZ Industries. Want to buy from me instead of them?" Or a manager may leave a company and ask her assistant to come with her.
Indirect solicitation gets a little fuzzy. It can mean a variety of things. For example:
- An employee can solicit a customer indirectly through a third party. "Chris, why don't you call Sally and ask if she wants to come with me to my new company?"
- Sending cards or emails to customers telling them about a new company could be considered indirect. Since customer lists are the property of the employer, this indirect solicitation breaks the agreement on several counts.
- Advertising your new position in a special trade publication or the business section of a local paper that you know customers read could be indirect solicitation. It's difficult to prove intent in this case, since many people advertise new positions.
Advertising a new position or new company to the general public gets really fuzzy. Is that indirect solicitation? Doesn't everyone have the right to advertise? And what about social media? Can you announce your new position on Facebook or LinkedIn without incurring a lawsuit?
Some legal cases have come down on the side of the former employee. In a 2012 Massachusetts case, a new employer announced on Facebook the name of someone who was joining their company and some of her customers replied. The court said that since there was no direct solicitation of clients, the agreement hadn't been breached.
Other Common Issues in Non-Solicitation Agreements
The most common issue in non-solicitation agreements is that if they are not "reasonable" (as defined on a case-by-case basis), they can be considered to be restraint of trade. That is, the agreement unreasonably restricts someone from doing business.
A lawsuit is filed and a court decides, or in some cases, a state has laws limiting restrictive covenants like non-solicitation agreements.
State laws vary. California's laws on these types of restrictive covenants are the most, well, restrictive. The state has a specific law which says that these types of agreements are generally unenforceable, except in cases where they are used to protect trade secrets.
Some issues to note:
- It is difficult to prevent someone from voluntarily leaving a company to join another company.
- It is also difficult to prove solicitation. What if a former employee doesn't actively seek out former customers, but they contact him or her? What if the former employee runs into a former customer at the grocery store and hands out a business card?
- In the case of customers, some companies attempt to prohibit indirect solicitation, which could mean advertising or publicity. This restriction makes it almost impossible to advertise a new business without risking the violation of a non-solicitation agreement.
- Salespeople, personal services employees, and brokers have a difficult situation if they leave a company. Taking a customer list can be considered a violation of a non-solicitation agreement, but not taking the list means not having any customers.