With a non-solicitation agreement in place, you cannot solicit clients or hire employees from your employer. You also cannot take confidential information from your former employer to a competitor if you work for one. These agreements can be confusing and are often conflated with other business agreements.
This article will clarify the fundamental details of non-solicitation agreements to offer a more comprehensive understanding.
A non-solicitation agreement is a common contract clause that states that if you work for a competitor, you won't:
In other words, you can't use your old company contacts to help your new company.
In any business, two of the most important groups of people are the employees and the customers. Stealing customers takes something extremely valuable from a company.
For example, imagine you're a high-ranking salesperson for a copper wire company.
Because of your job, you've spoken with copper wire buyers worldwide. One day, a different copper wire seller offers you a better job, and you accept.
If your employment contract with your first job has a non-solicitation agreement, you can't go to the copper wire buyers and ask them to switch suppliers because you've switched employers . The same applies if you go into business for yourself.
Most non-solicitation agreements include key elements to protect the company's interests and ensure compliance.
A non-solicitation agreement operates as a contract between a company and one of its employees. In the agreement, the employee states that they will not solicit any customers or clients of the company after leaving the position.
These customers and clients cannot be solicited for the benefit of the former employee or the benefit of any competitor to the business.
This agreement may also outline the restrictions against soliciting current employees. If an employee chooses to leave the company, that individual may not attempt to take other employees to a new company or job opportunity.
Most non-solicitation agreements are part of larger documents.
Employers can present non-solicitation agreements to employees at any time during the professional relationship. An employee may be required to sign one per the terms of employment.
The scope of a non-solicitation agreement also includes its geographical scope, which entails the limits of where an employee can solicit other employees. This is generally determined by the company's physical location and operations.
Having no qualifications or no jobs being available is one thing, but an employer can't force someone to either work for them or be unemployed.
This is why non-compete agreements are either very specific or fragile and have geographic limits.
If you tell a pharmaceutical researcher he can't work in the industry for five years in his home state, you're saying he should be unemployed or exiled from his home state since pharmaceutical research is all he knows.
The duration of a contract could be months or even years, but it does have an end eventually. Courts usually see longer terms as more suspicious, but it also depends on how important the former employee is.
The agreement must also include the consequences of a breach and how damages will be calculated in the case of a breach. Consequences can include monetary penalties, injunctive relief, or both.
Depending on the specific agreement, it might contain several other things.
A non-solicitation agreement is one of several clauses often found in employment contracts, but it can also stand alone as a unique contract.
Others include non-compete agreements and non-disclosure or confidentiality agreements. Together, the three are sometimes called restrictive covenants. These agreements can also apply to contract workers as well as regular employees.
A non-compete agreement says you can't work for a competitor or start a competing business for a certain amount of time. In contrast, a non-disclosure agreement says you can't talk about anything confidential you come across during your job.
The difference between non-solicitation and non-disclosure is that non-disclosure concerns sharing confidential information, while non-solicitation concerns not using confidential information.
Both are alike, however, in that they have time limits.
As you might expect, companies often use non-solicitation agreements with employees who interact with clients, customers, and employees.
These agreements exist to protect important employee and customer relationships.
For instance, a doctor's administrative assistant would have a long and confidential client list, and a salesperson who works for a company that sells to other businesses would have personal relationships with every customer.
If a leaving employee asks her friends to join her new company, that's solicitation, and it's sometimes called poaching. The same goes for asking customers to support the new company instead of the old one.
Non-solicitation can also apply during a company sale or restructuring. The terms of the sale can include a special transitional non-solicitation agreement that says the old owner can't take some or any of the staff upon leaving.
Sometimes, companies will also try to stop indirect and passive solicitation, which means a former employee who starts a business can't advertise.
Making this demand might be unlawful since it would stop a company from letting anyone know it exists.
However, a company that advertises that it picked up a salesperson from another company is definitely against the spirit of non-solicitation and should be part of an agreement.
If that's impossible, the salesperson in question shouldn't be the one to handle the clients who switch because of the announcement.
Another use of non-solicitation and non-compete agreements is deciding IP ownership.
If you say all the patents, copyrights, trademarks, and trade secrets employees create on the job belong to the company, it becomes easier to keep them when the employees quit.
Social media offers another challenge to non-solicitation because of the way everyone keeps up with everyone else.
On sites like LinkedIn, Facebook, and Twitter, friends and followers can find out immediately when an employee has a new job, and they may decide to switch jobs based on that information.
For the most part, the courts believe general announcements and public messages don't count as communication or solicitation, but directed messages, both public and private, do count. It also depends on the message content, though.
The primary benefit of non-solicitation agreements is that they can prevent former employees from using company information to solicit clients and customers for their own personal gain.
This can result in financial loss for the company and a negative impact on its reputation.
More and more employees across all industries are leaving their company positions to start their own businesses. As a result, companies must protect themselves from the potential theft of their customers and clients.
It often takes lots of effort to build a base of loyal clients, patients, and customers, so companies will want to do everything they can to keep those with whom the business has established trust.
You can present a non-solicitation agreement to an employee at just about any time, from before the job starts to the very last day.
The best time is before the job begins because at that point, you can make signing it a condition of getting the job. You can't do that after you hire them.
When creating a non-solicitation agreement, key considerations must be considered to ensure a strong and enforceable contract.
Even if an employee signs a non-solicitation agreement, it can be incredibly difficult to enforce. In California, a state Supreme Court ruling made all non-solicitation agreements unenforceable except to protect trade secrets.
The biggest legal challenge with enforcing non-solicitation agreements is the unofficial right to work. Like the right to privacy, it's not technically an official part of the Bill of Rights, but some states have right-to-work laws.
The idea of these right to work laws, including the ones in California, is that everyone has a right to work in a chosen profession.
Outside of California, non-solicitation agreements must meet certain requirements for any chance of being enforceable:
The agreement is supposed to stop employees from using insider knowledge to poach customers or pressure other employees into joining them.
If customers leave anyway, or if employees leave to join the person with the agreement just because they want to, the agreement doesn't apply.
If a department store manager quits and opens her own store two blocks away, the customer list is too big to matter. If a bartender leaves his job and a few regulars go with him, that's likely not valuable or confidential enough.
However, if a glassmaker has two secret high-tech clients, a representative who switches to a new glassmaker and takes a secret client with her could apply for this agreement.
A confidential customer list is one example, but the employer might also want to protect its valuable specialist employees.
Trade secrets are also important. The non-solicitation agreement might also exist to protect the company from the mass turnover of employees with access to trade secrets or specialized knowledge or training that's important to the business.
For example, if a potential competitor could simply review online listings or the local phone book to determine a company's customers, the non-solicitation agreement likely wouldn't hold up in court.
You should never sign anything your employer gives you lightly.
Some contracts are like end-user license agreements (EULAs), and the courts don't expect you to read them all the way through. Employer contracts are a different story, and it doesn't matter how long they are.
You might also find non-solicitation agreements buried in employee handbooks, stock option and bonus grants, retirement plans, and elsewhere. A non-solicitation agreement could be part of signing your stack of new hire paperwork upon starting a new job.
Many companies require high-level executive and leadership team members to sign non-solicitation agreements, but they may not require lower-level employees to sign.
Regarding non-solicitation agreements, read the entire thing yourself and think about whether it's reasonable based on your job description and the conditions above.
If you can accept it, go ahead and sign, but don't be afraid to speak to your HR head or a contract lawyer if you have any questions.
If it seems like it goes too far, wait before signing it until you consult a lawyer, and don't take no for an answer.
Remember that you can negotiate, too. If you work in California, you should almost never have to sign a non-solicitation agreement.
There's also something called adequate consideration.
This means the employer gave a future employee enough of a warning about the non-solicitation agreement and the other restrictive covenants to back out.
None of the covenants have normal versions, so this means letting the future employee see the agreements before leaving the old job.
The only way around this is if signing the agreement gets you a cash bonus, not the job itself. This is why you should read everything carefully before signing for an annual bonus or stock options.
You should also protect yourself by watching what you sign before, during, and after your job. If you have contacts before starting a job, you should ensure they don't count in a non-solicitation agreement.
You should also warn your employer about any other restrictive covenants you've signed. In exchange, your employer's list of customers should never leave the workplace.
In the end, you should remember that if a company gives you strict non-solicitation and non-compete agreements, they're mostly hoping you won't try to challenge them.
Knowledge is power, so learn your rights. A restrictive covenant can prevent a former employee from poaching clients by not allowing that former employee to even contact clients on the list.
If you're an employer and notice a former employee violating the non-solicitation agreement, it's important to act quickly and get a cease-and-desist order.
To get one, you must prove the agreement is valid, and the employee violated it. Proving a breach of contract can be challenging, and there are several reasons why a court might rule against an agreement.
These are six of the most common:
The non-solicitation agreement can only cover the ways a former employee could hurt the business.
If a copper wire salesperson gets a job selling steel cables and approaches the old clients, that doesn't count because the two businesses aren't competing.
How long is too long depends on the state and the jurisdiction, but non-solicitation agreements shouldn't last forever.
A one-size-fits-all agreement is easy to make, but it's not right for every job.
For instance, a car dealership has two salespeople: a supervisor who sells trucks to commercial fleets and a rookie who sells compacts to families.
Since the first person is technically more valuable to the company, it would make sense for the second person to get a lighter agreement.
Due to how America's legal system works, contract law can be very different between states and even between cities. You must remember this if you want your non-solicitation agreement to be legal.
You should also be aware that not every court will agree with the jurisdiction you think counts. However, it usually goes to the state where the employee lives.
The non-solicitation agreement should match an employee's current job, not the one they had first. This might mean signing a new agreement with every job change, but it's necessary.
Solicitation can mean a few different things.
It can mean stealing clients, poaching employees, and otherwise using inside information for a different company.
If you want your agreement to mean anything, you need to make sure you define solicitation based on what you don't want the employee to do.
For instance, what if an employee contacts the former employee first? Does that count as soliciting, and can you legally stop that from happening in your jurisdiction? What about serving clients? Should you allow that?
On the topic of wording, we’ve provided definitions relating to much of the terminology used in this article and non-solicitation agreements in general.
The term is the length of time the non-solicitation contract applies.
Non-solicitation agreements can cover one or both of two issues: bringing in clients from the old company and hiring former co-workers.
For example, an HR director is in a good spot to know all the best employees, while a top salesperson knows how to steal customers by undercutting their old employer.
When you want to deal with these issues separately, not stealing clients is still non-solicitation, while not stealing employees is a no-hire provision.
Most companies still include both in the same contract, but no-hire provisions can be a sore spot in court.
After all, even if the former employee clearly broke the agreement, people have the right to work where they want in America.
A no-hire provision with a blanket ban on poaching employees is a bad move. The courts don't like it, and you don't need that much protection anyway.
Plenty of businesses have low-skill jobs that can be learned in just a few months. You don't need to protect these employees with non-solicitation agreements, and you shouldn't.
Instead, protect the essential employees you can't easily replace. You should be able to prove that losing these employees will make it harder or impossible to run your business.
You can also include employees who handle confidential information and those who form personal relationships with clients and customers.
In most cases, that's the standard you must match if your contract goes to court. The qualified employees are called covered employees since the agreement covers them, not others.
Exceptions to the rules of non-solicitation agreements make them easier for employees and judges to swallow. They also help make it clear what you will and won't accept.
For instance, a non-solicitation agreement shouldn't ban a general advertisement sent out to the public just because your employees might see a "now hiring" notice.
Regular non-solicitation agreements will also let you hire employees who leave the old company for unrelated reasons.
However, the agreement only allows this after a few months so that companies won't use it as a loophole.
Transitional provisions can apply to contractors who work with a company under service and non-solicitation agreements.
Depending on the services, employees from one company might work full-time for another company, like a temp agency that assigns workers to local workplaces.
Sometimes, these contracts end, but the second company still needs someone to do the job.
The transition period occurs between the decision to end the contract and the moment the company can bring in a replacement, and it sometimes goes past the time the contract says it ends.
Because of the importance of this time, non-solicitation agreements will often have unique transition provisions.
For example, the second company can pay the employee's wages after the contract ends, but only until they train a replacement.
Along with this minefield of problems, it's hard to prove solicitation occurred.
After all, people have a right to work and change jobs, and they might do so even if no one solicits them to do so. Courts can also change the agreement terms in many jurisdictions to make them lawful.
In others, they strike down the agreement altogether.
You should also remember that a future employee of yours might have to deal with the restrictive covenants of another company.
As an employer, you need to know if this is true and respect the terms of the agreement. If you don't, the former employer could sue you instead of the employee.
If an employee or other individual involved with a business signs a non-solicitation agreement and violates its terms, the company may choose to take legal action against that person.
Whether you represent a company with expert employees and an exclusive customer list or are an employee starting a new job, it is helpful to bring in an employment or contract lawyer to review the non-solicitation agreement line by line.
This lawyer can help by firming up the language, removing what isn't enforceable, and negotiating for better terms.
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