Increasing limitations on non-compete agreements in a number of states have made some companies question the usefulness of agreements that prohibit post-employment competition altogether. Non-solicitation agreements, however, are alive and well and will be enforced. Judges recognize the importance of reasonable prohibitions against employees contacting clients, customers or lead sources after they have left their employer, particularly if they have left voluntarily (but even if they have not). Non-solicitation agreements, either stand alone or as part of an employment agreement, have become increasingly popular as businesses pivot away from non-competes.
The protection of clients and customers
A non-solicitation agreement can effectively fill the same role as a non-compete agreement, particularly in a service industry. When the company uses language that prohibits the solicitation of clients and customers, a former employee who leaves to work elsewhere must adhere to it. If the former employer files a lawsuit once it get wind of a violation, courts are often willing to enter a preliminary order (injunction) to stop employees from inducing their former clients and customers to join them at their new place of business. After a trial, and discovery of the employee’s efforts to solicit the former employer’s business, the former employee risks a judge or jury imposing damages in the amount of business the old employer has lost.
The protection of key talent
Worker who leave to take a new job or start their own company might also damage their former employer by luring former coworkers away to join the new company. Whether they reach out to directly hire their former subordinates after taking a management position elsewhere or try to hire people who are top performers on different teams, they could leave their employer in a lurch. Most non-solicitation agreement prevent solicitation of employees as well as clients and customers. Judges look askance at an employee acting like a “corporate Pied Piper” in inducing others to leave.
As with any restrictive covenant, a non-solicitation agreement must be part of an otherwise valid contract. Courts will uphold non-solicitation agreements signed at the outset of employment as part of the employment relationship.
Employees are well advised to seek counsel before signing a non-solicitation agreement. And, if they have a book of business, they should ensure that clients with whom they have a pre-existing relationship and who may join them later, are exempted from the non-solicitation clause. After an employee leaves, he should find out what types of behavior can be construed as “solicitation” that violates the employment contract. Employers, for their part, should ensure that the non-solicitation agreement is reasonable in time and scope and does not, for instance, prevent solicitation of customers that the employee never met or interacted with during the term of her employment. Courts will not prevent ordinary competition, but will enjoin an employee from leveraging his relationship with the former employer to induce clients with whom he had close relationship to follow him elsewhere.