How Non-Solicitation Agreements Work
Lots of folks in the workplace want to learn more about the meaning of a non-solicitation clause. And, for good reason! Employees are frequently curious if the company they worked for can prevent them from bringing coworkers and/or the company’s clients with them when they exit. If an employee signs a non-solicitation agreement, that can be the case.
A non-solicitation clause may be worked into bigger contracts. Like a nondisclosure agreement, a noncompete agreement, or even an employment contract. It’s not a requirement that the non-solicitation clause be integrated into another contract, though. Let’s say an employer is solely intent on guarding its clientele. Then, they are entitled to ask the employee to agree to a non-solicitation agreement.
With a non-solicitation clause or agreement, any given employee of a company agrees that they can’t solicit customers or clients for their or a competitor’s benefit, once they’ve moved on from that company. Further, the non-solicitation clause could specify that the employee may not solicit current staff members to depart after they’ve left the company.
Employees May Be Asked to Sign a Non-Solicitation Agreement Now or Later…
What if a non-solicitation clause or agreement isn’t given to an employee at the start of their employment? Does that mean they won’t encounter one at a later date?
Not necessarily! It varies from company to company. Some new hires are asked to sign off on a non-solicitation agreement when they are onboarded. In other instances, a company may request a departing employee sign a non-solicitation agreement because it’s tied to their severance package.
Sales and service businesses are where employees more typically will see non-solicitation clauses. That’s because in sales and service the client list or customer base is integral to how the business operates. The more specialized the product or service being offered, the more limited the clientele or customer. Companies selling goods that appeal to a larger consumer base may also wish to use a non-solicitation agreement. If a business’ competition in the marketplace relies on offering a specific price point, an employee who understands that from the inside out could have an advantage if/when they were to solicit any of the existing customers.
The Enforceability of the Non-Solicitation Clause
What about the enforceability of a non-solicitation clause?
A non-solicitation agreement will probably be enforced if it’s in fact signed by the employee. To make it unenforceable, the clause or agreement would have to unfairly impact a competitor’s wherewithal to hire employees or bring in new customers/clients. A non-solicitation agreement might also be unenforceable if its terms limit an employee’s ability to earn a living.
The exception in the United States is California. The Supreme Court in that state ruled that non-solicitation agreements are void if they specify that employees are prohibited from soliciting their previous employer’s clients or customers. In every other state, the non-solicitation clause will be enforceable unless it is unfair with regard to the employee or the company’s competitors.
In order for a non-solicitation to be enforced, it must contain certain elements:
- The company needs to have a legitimate reason for the agreement or clause, which is related to the business. This could be to protect any kind of valuable knowledge, like trade secrets or a client list. A valid reason might also be to guard against a collective walkout by certain employees with high value who have esoteric skills, information, or access.
- The customer base or client list must merit protection. A company isn’t permitted to use a non-solicitation clause to protect information that is already accessible by the public. The clientele or customer base has to have been established by the company via money, energy, and time.
- The non-solicitation clause must allow employees and customers/clients to leave if they wish. The agreement can’t prohibit an employee or a customer/client from moving on to their competitor. Unless the competitor solicited that employee, or unless a former employee solicited the customer/client, the non-solicitation clause can’t be enforced.
What to Do When Asked to Sign a Non-Solicitation Agreement
What the heck do you do if you are asked to sign a non-solicitation clause or agreement?
Well, before you do anything, definitely read through the agreement! Just because you’ve been asked to sign off on a non-solicitation agreement, doesn’t mean you should agree to do so blindly. Spend a reasonable amount of time reading the agreement and try to understand precisely what it states and how that applies to you as an employee. As you may know, legal documents are not always written in the most straightforward manner! So, if you still have questions about what the agreement says after you’ve read it, you may want to consult with an attorney. Non-solicitation clauses and agreements have actual implications on your future after you no longer work for a given company. That’s super important! If there’s any reason to believe the non-solicitation clause or agreement has too many limitations, seek legal counsel.
Our team at Stockman & Poropat, PLLC can help you with non-solicitation agreements! The law on this subject is in constant flux and the legality of these agreements and what they specify varies on a local level. Contact us to discuss your options today! The consultation is free!
Up next we will be discussing the Three Types of Service-Level Agreements.
