Non Solicitation: Everything You Need to Know
In a non solicitation agreement, if you work for a competitor, you can't solicit clients, hire employees, or use confidential information from your current job.14 min read
A non-solicitation agreement says that if you work for a competitor, you won't solicit any clients, bring over any employees, or use any confidential information from your current job.
What Is a Non Solicitation Agreement?
A non-solicitation agreement is a common contract clause that says if you work for a competitor, you won't solicit any business clients, bring over any employees, or use any confidential information connected to your current job. 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 company that sells copper wire. Because of your job, you've spoken with copper wire buyers all across the globe. 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.
A non-solicitation agreement operates as a contract between a company and one of its employees. In the agreement, the employee states that he or she 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 with him or her to a new company or job opportunity.
Part of a Larger Agreement
Most non-solicitation agreements are part of larger documents. Examples include:
- Non-disclosure agreements
- Employment contracts
- Non-compete agreements
A non-solicitation agreement is one of several clauses that often show up in employment contracts. They can also stand as unique contracts. Others include non-compete agreements and non-disclosure or confidentiality agreements. The three together are sometimes called the restrictive covenants. These agreements can also apply to contract workers as well as regular employees.
The non-compete agreement says you can't work for a competitor or start a competing business for a certain amount of time. The 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 is about sharing confidential information while non-solicitation is about not using confidential information. Both are the same, however, in that they have time limits.
When Is a Non Solicitation Agreement Used?
Employers can present non-solicitation agreements to their employees at any time during the professional relationship. An employee may be required to sign one per the terms of employment. This document could also be part of a severance package when an employee is let go.
When Would I Use a Non Solicitation Agreement?
As you might expect, companies use non-solicitation agreements most often with employees who interact a lot with clients, customers, and employees. 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. Companies that create something generic like copper wire have to be even more careful.
These agreements exist to protect important employees and customer relationships. If a leaving employee asks her friends to join her new company, that's solicitation and 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.
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 to get the job. You can't do that after you hire them.
Are Non-Solicitation Agreements Enforceable?
Contract law is kind of funny. You might think you have to follow every clause in a contract if you sign it, but that's not true. If nothing else, a contract killing will never be legal even if it involves an actual contract signed by two people and a notary. So even if an employee signs a non-solicitation agreement, it might be impossible to enforce. In California, a state Supreme Court ruling made all non-solicitation agreements unenforceable except to protect trade secrets.
The biggest legal problem with non-solicitation agreements is the unofficial right to work. Like the right to privacy, it's not an official part of the Bill of Rights. The point is that everyone has a right to work in a chosen profession. No qualifications or no jobs available is one thing, but an employer can't force someone to work for them or be unemployed.
This is why non-compete agreements are either very specific or very fragile and why they 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, flipping burgers, or exiled from home since drug research is all he knows.
Non-solicitation agreements aren't as risky, so courts enforce them more often. Still, they must meet certain conditions (outside California):
- The agreement doesn't stop employees or customers from leaving the company. 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 the agreement is about customers, the customer list has to be valuable and contain confidential information. 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 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 would count for this agreement.
- The employer needs a specific business reason to have the non-solicitation 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 those trade secrets or specialized knowledge or training that's important to the business.
- To qualify for a non-solicitation agreement, a company must have invested money, energy, and time into establishing the database of customers. The database must also contain details that wouldn't be available to members of the public. 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.
- The agreement shouldn't shut the employee out of a job. A salesperson who knows all 10 companies that buy her industry's products won't be able to work if she signs a standard non-solicitation agreement.
- A non-solicitation agreement can't restrict an employee from leaving voluntarily even if the employee, customer, or client who has signed the agreement moves to a competitor.
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 just from that. 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.
One clause that's growing in popularity is liquidated damages. Because proof and damage amounts are hard to figure out with non-solicitation agreements, companies will say the employee owes a specific amount of money no matter what. This may not be lawful or enforceable. Similar clauses include claw-backs and forfeitures that demand the employee give back bonuses and stock options. They're also highly suspect.
What Happens When a Non-Solicitation Agreement Triggers?
If you're an employer and you notice a former employee violating the non-solicitation agreement, it's important to act fast and get a cease-and-desist order. To get one, you must prove the agreement is valid and the employee went against it. There are several reasons why a court might rule against an agreement:
- Too broad: 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.
- Too long: How long is too long depends on the state and the jurisdiction, but non-solicitation agreements shouldn't last forever.
- Too generalized: 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 more valuable to the company, the second person should get a lighter agreement.
- Wrong jurisdiction: Thanks to the way America's legal system works, contract law can be very different between states and even between cities. You have to keep this in mind 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.
- Wrong job description: The non-solicitation agreement should match an employee's current job, not the one he or she had first. This might mean signing a new agreement with every job change, but it's necessary.
- Poor wording: 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?
Along with this minefield of problems, it's hard to prove solicitation even took place. People have a right to work and change jobs, after all, and they might do so even if no one asks them. In many jurisdictions, the courts can also change the agreement terms to make them lawful. In others, they strike down the agreement completely.
You should also remember that a future employee of yours might have to deal with another company's restrictive covenants. As an employer, you need to know if this is true and you need to respect the agreement terms. 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 business may choose to take legal action against that person.
Should I Sign a Non Solicitation Agreement?
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. When you sign your stack of new hire paperwork upon starting a new job, a non-solicitation agreement could be part of it.
Many companies require high-level executive and leadership team members to sign non-solicitation agreements. They may not require lower-level employees to sign.
As far as non-solicitation agreements go, 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 and not the job itself. This is why you should be careful and read everything 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 you start a job, you should make sure 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, after all, 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.
Why are More Companies Requiring Non-Solicitation Clauses?
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. Businesses can't survive without customers, and new business owners will quickly learn the importance of attracting and maintaining loyal clients.
If a former employee of a company has formed relationships with certain companies or customers, it would be easier to contact those customers directly rather than starting at the bottom. However, if the former employee signed a non-solicitation clause, reaching out to those customers could result in a lawsuit. An employment agreement might include this clause as a way to protect the potential harm that could happen if a former employer tried to steal customers.
Non-solicitation clauses don't only apply to customers, patients, and clients. This type of agreement could restrict former employees from reaching out to current employees for any business reason. Finding, hiring, and training quality employees can take lots of time and effort, so businesses need to be able to protect that interest. It's reasonable and common for an employer to protect its investment by restricting former employees from contacting current employees about other business opportunities.
For example, if Julie worked for a company and decided to leave to start a new business, she might want to bring her hard-working, knowledgeable, and skilled assistant, Amy. Julie knows Amy well and gets along with her, so Julie probably thinks Amy would make a good addition to the new team.
However, if Julie signed a non-solicitation clause as part of her employment agreement, this would restrict her from soliciting Amy and taking her to the new company. If Julie chose to do so anyway, the company could take legal action against her. The company wants to protect its interests and any time and money invested in training Amy.
- Term: The term is the length that the non-solicitation contract applies. The term could be for months or even years, but it does have an end. Courts usually see longer terms as more suspicious, but it also depends on how important the former employee is.
- Solicitation and no hire: Non-solicitation agreements can cover one or both of two issues: bringing in clients from the old company and hiring on former co-workers. This article discusses both issues above, but it can also be handy to separate them. 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 his or her 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 put both in the same contract, but you should know that 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.
- Covered employees: 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 you can learn in just a few months. You don't need to protect these employees with non- solicitation agreements, and you shouldn't. Instead, you should only protect the important 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. Aside from that, you can also include employees who handle confidential information and ones who form personal relationships with clients and customers. In most cases, that's the standard you need to match if your contract goes to court. The ones who qualify are called covered employees since the agreement covers them and not others.
- Agreement exceptions: 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 term of a few months so companies won't use it as a loophole.
- Transition provisions: Contractors who work with a company under a service agreement can also sign and demand non-solicitation agreements. Depending on the services, employees from the first company might end up working for the second company full time, 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 takes place between the decision to end the contract and the moment the company can bring in a replacement, and it sometimes goes past when the contract says it ends. Because of how critical this time is, 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 he or she trains a replacement.
Whether you represent a company with expert employees and an exclusive customer list or whether you're an employee starting a new job, it can be important to bring in an employment or contract lawyer to check 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. Just post your legal needs, and UpCounsel can help by connecting you to some of the best lawyers in the business. These professionals have an average of 16 years of experience, and many are graduates of Harvard and Yale.