What Is a Non-Solicit Agreement?
A non-solicitation agreement is a common contract used in the corporate world. It can be defined as an agreement between an employer and an employee that the employee will not solicit any of the employer’s current or former employees or customers. These agreements vary by state but they are all used toward the same end: to prevent former employees from "stealing" current employees or clients through solicitation or recruiting.
Non-solicitation clauses differ from non-compete and confidentiality agreements. Non-compete agreements state that the employee will not work for a competitor once he or she has left the company. These can be geographically and time limited. Confidentiality agreements generally stipulate that the employee will keep confidential legal or financial information that the company may have, or keep a secret the employer’s affairs after leaving the company. Non-solicitation agreements do not prevent the employee from working in any industry or with any company; they only prevent the employee from soliciting employees or customers of the current or former employer . For example, a technology company may not want a software engineer to leave for a competing company because then the software engineer could potentially take technical knowledge that he gained in his position at the technology company and either benefit the competitor or himself if he starts a competing company with his former colleagues. However, upon leaving, the employee would be free to work wherever he wanted, such as at a different technology company or as an independent contractor. Similarly, the employees may decide not to work together at another company or may compete against one another.
State courts examine non-solicitation agreements uniformly with other non-compete agreements in the same manner. Courts generally analyze three things: 1) whether the agreement serves a legitimate business interest of the employer; 2) whether the agreement is reasonable in time, territory, and scope; and 3) whether it does not impose a greater burden on the employee than needed to serve the employer’s interests.
Key Aspects That Make Them Enforceable
Courts assessing the enforceability of a non-solicitation will consider several key elements. First, they will look to see if the agreement is reasonable in terms of the time restriction. Courts will generally favor agreements of short duration, such as one year, but different states will have different views on what is reasonable. A one year restriction may be unreasonable in some states, but not others. Second, courts will assess whether the restriction has an appropriate geographic area. Again, some states may not allow a non-solicitation that prohibits the former employee from working anywhere. Further, courts will analyze whether there is an appropriate balance between the interests being protected and the restriction itself. Overly broad restrictions which interfere with high-level employees’ ability to find gainful employment often will not be enforceable.
Examples of Provisions in a Non-Solicit Agreement
There are common clauses found in non-solicitation agreements:
- The above definitions should further break down subcategories (i.e., clients, accounts, etc.) to cover all bases, but the company should realize that one broad definition may be sufficient under the circumstances.
- The non-solicitation provision should broadly provide:
- The clauses should then go on to detail the circumstances or duration of solicitation prohibitions. For example, the above provision may further state: "Employee agrees not to make solicitations for 2 years from the date of termination of Employee’s employment for any reason whatsoever, wherever located, directly or indirectly, on behalf of himself or any other person, firm, partnership, corporation, association or entity to solicit, divert, or take away any business from the Company that is or was being carried on during the last 6 months that Employee was employed by the Company," or in the alternative, "for a period of 6 months."
- If the company wants the Employee prohibited from soliciting his/her coworkers as well, it should add a provision in the non-solicitation agreement similar to the following language:
"Employee further agrees that during the term of this Agreement and during the 2-year period following the termination of Employee’s employment with the Company for any reason whatsoever, Employee shall not, directly or indirectly, for himself or another person, firm, partnership, corporation, association or entity, (a) recruit, solicit, hire or attempt to recruit, solicit or hire any employee of the Company, or any former employee of the Company who was an employee of the Company at any time during the 1-year period prior to the date of Employee’s termination, or (b) otherwise induce any employee of the Company to terminate his or her relationship with the Company or to become employed with any other person, firm, partnership, corporation or association."
All of these provisions are subject to negotiation, and can be tailored to meet the preferences of the parties, and to the tolerance of the courts.
Possible Obstacles to Enforceability
Non-solicitation agreements may be susceptible to some common legal challenges. One frequent problem is that the agreement is too broad and amounts to a general ban on competition in the marketplace. Employees can argue that the agreement is unenforceable and should be struck down because it violates public policy to the extent it embraces a wide swath of the business world. The argument could be made in such cases that the restriction prohibits an employee from exercising his or her ability to earn a livelihood in any field in which the employer (whom the employee has already left) is engaged. As the argument would go, an employer cannot use a non-solicitation agreement as an offensive weapon to blockade an employee from earning a livelihood. A non-solicitation agreement that prevents a former employee from doing business with any of the employer’s top 20 customers would be more likely to be perceived as unreasonable than one that simply prevented that former employee from contacting a small number of customers with whom the employer has an ongoing and particularly profitable relationship.
Another challenge could be that the agreement was based on improper consideration, such as the continued employment of an at-will employee and not a material detriment. Suppose an employee has already been with a company for two years when asked to sign the non-solicitation agreement. The common understanding of a continued at-will employment relationship is that either the employer or the employee is free to terminate that relationship at any time and for any reason or without reason. For that reason, continued employment is not generally viewed as something of additional value sufficient to support an agreement that restricts the employee’s ability to do such things as contact former customers when the employment has already been in existence for two years.
Relevant Case Law and Prior Court Rulings
A number of cases have addressed the enforceability of non-solicitation agreements. For example, in Kelly Services, Inc. v Greene, No. 08-3613 (E.D. Pa. March 10, 2010), a former employee worked for an employer that provided healthcare staffing to hospitals and medical institutions. When she left employment, the non-compete prohibited the former employee from soliciting or providing services to any of the employer’s "patients or customers." The district court concluded that the employer’s relationship with the patients was unique because it was only the employer’s personnel who had access to the patients. However, in light of the plain language of the employed, the court did not address the enforceability of the provision that restricted competition.
In Northern Leasing Systems, Inc. v. Vaccaro, 92 A.D.3d 714 (N.Y. App. Div . 2012), the New York Supreme Court affirmed a lower court’s dismissal of the former employer’s claims for, among other things, tortious interference with contract after determining that the employee’s provision of services to an organization that had no facilities or in-house employees did not competently with the employer’s business and thus the non-compete agreement was not applicable. The lower court concluded that the non-compete agreement was not broad enough to cover the organization’s unique situation.
The trend that has emerged is that courts will enforce non-solicitation agreements if they are imposed only to protect trade secrets, confidential information, goodwill, and legitimate business interests. Courts regularly refuse to grant injunctive relief to enforce overly broad restrictions on competition. Courts also have refused to create new language to make enforceable agreements that are unenforceable on their face. What constitutes reasonable time and territory issues may not be defined. Employers can prevent disputes over the interpretation of vague or ambiguous language in non-solicitation agreements by plainly defining time and territory within the agreement.
Advice for Employers in Crafting Enforceable Provisions
Courts will invalidate overly restrictive non-solicitation agreements or reduce the scope of the restrictions in those agreements to be enforceable. Following these best practices will help employers draft non-solicitation agreements that are more likely to be enforceable.
Only require a non-solicitation agreement for employees whose duties are either highly technical or comprise customer/client relationships.
Courts are more likely to enforce non-solicitation agreements that are narrowly tailored to meet a legitimate business interest. The rationale is that these employees are often privy to trade secrets, confidential information or customer/client information, and therefore the use of these restrictive covenants is reasonable. To ensure enforceability, an employer should only require employees working in these highly technical positions or who have a close relationship with customers or clients to sign a non-solicitation agreement.
Ensure the duration of the time period is reasonable. The purpose of requiring an employee to refrain from working at a new job or soliciting old clients/customers is to prevent the employee from taking with him/her knowledge acquired at the previous job that might be used against it in soliciting its customers or doing the same work at a competitor. Courts will look to how long an employee’s job search reasonably is expected to take. For many professions, a six month period would be far too long. Generally, the longer a time period, the less likely it is to be enforceable. A reasonable time period for most jobs is three months.
Ensure the geographic scope is reasonable. This means the restriction must be tailored to the geographical limits of the company’s customer/client base and the near vicinity of its location. A California court rejected a one-year, nationwide non-compete restriction because "under the circumstances here, in which [plaintiff employer] operates a retail business and competes readily in fairly small geographical areas, such a broad geographical reach is too expansive."
Review agreements regularly. Agreement that prohibit employees with the potential to compete against the company should be reviewed every year or two to ensure the restrictions are appropriate based on the work each employee performs and the company’s changing business.
Employee Rights and Points to Consider
Employees should be aware of the limited rights they have to solicit clients or former co-workers once they leave employment. When considering whether to work for a company that expects you to sign a non-solicitation agreement, employees should ask themselves whether they will ever leave their new employment.
Even in a "right to work" state such as Florida, most employees are not going to have the ability to dictate when they will expect to leave a job. Even with no other circumstances, it is a rare employee indeed that a prospective employer will be aware of all the circumstances that might cause that employee to leave.
More importantly for employees who might consider accepting an offer of employment that is contingent upon agreeing to a non-solicitation agreement, they should even ask how likely it is that they will want to go to work for one of their former co-workers. The problem is that the sight of a raised salary and potential promotion might blind any employee from considering future issues and events. For that reason, employees should at least give a few moments of thought to whether they know where they will be employed five years and ten years from now.
Knowing the answer to that question is unlikely to be sufficient to protect an employee who later seeks to contact former co-workers or their former clients. For that reason, employees should consider whether they will be able to contact former clients to discuss a possible return to employment prior to signing any restrictive covenant agreement. If an agreement is required by the prospective employer that does not permit the employee to leave open the possibility of soliciting former co-workers and employers, the new employer may not be showing that it practices what it preaches.
Wrap-Up: Weighing Interests Against What Is Enforceable
The enforceability of non-solicitation agreements is not a one-size-fits all scenario. While non-solicitation covenants can offer protection for an employer’s business interests, their enforceability will depend on the specific language and purpose of each agreement as well as the laws applicable to the particular work location of the engaging employee. As such, it is essential for employers to consult with legal counsel to ensure compliance with all regulations and guidelines which govern these types of agreements.
As discussed above, the best approach to ensuring legal compliance in implementing non-solicitation covenants is to craft them in a way that is reasonable and necessary to protect the business interests of the company. A blanket restriction that applies to all employees irrespective of time of employment, nature of position , or geographical location is likely to invite litigation and challenges under applicable state laws. Such broad restrictions may also deter employees from submitting an application for employment with the company in the first place for fear that they will be unable to work with other companies as a result.
The enforcement of non-solicitation agreements is not an easy process and may involve litigation. If not properly drafted to comply with all applicable state and federal laws, an employer may find itself mired in costly litigation that may exacerbate business concerns by souring relations with key employees or customers. Therefore, it is the responsibility of employers to ensure that non-solicitation agreements are carefully tailored to each employee and comply with diligent legal oversight in order to ensure that the best interests of the company are preserved while complying with the law.