A non-solicitation agreement is a contract in which an employee agrees not to solicit his or her employer’s clients or customers — either for their own benefit, or for the benefit of a competitor — during employment or upon departure. There are a number of reasons why a business might want to consider using a non-solicitation provision rather than a non-compete.
“All restrictive covenants, which include non-competes and non-solicits, are subject to state law,” says Michael Torchia, a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. “But in most states, non-competes are much more difficult to enforce than non-solicits.”
Smart Business spoke with Torchia about how non-solicits and non-competes differ, in what circumstances non-solicits make more sense, and what specific information should be included in employment agreements.
What are the differences between a non-solicitation agreement and a non-compete?
Generally speaking, a non-compete prevents someone — usually a former employee — from working for a competitor. Non-solicitations do not prevent someone from working for a competitor. Instead, they restrict an employee from soliciting customers and clients from their former employer. Non-solicits can also stop an employee from soliciting other employees from their former employer.
It’s often more appropriate to use a non-solicitation rather than a non-compete. If an employer can live with a former employee working for a competitor, a non-solicitation will do the trick. If an employer is concerned the former employee could harm the company if not bound by a non-solicitation, say by divulging a market strategy, pricing or proprietary formula, then it would make more sense to use a non-compete.
What are the advantages of a non-solicitation agreement as compared to a non-compete?
Non-solicits hold up in court much more easily than non-competes as judges are usually more likely to enforce the former. That’s often because non-solicits are without the presumption against the restraint of trade and free employment — the company is seen as just trying to protect its best interests. A non-solicitation agreement is essentially saying to the judge that the company only seeks to protect what the company has developed, whether that is a customer list or an employee base. With a non-compete, however, the result is someone being unable to work, very often in the only profession or skilled field they know. Judges will often try to avoid making such a ruling.
Non-compete and non-solicit provisions can be contained in the same agreement, most frequently an employment agreement. If a company seeks to enforce multiple provisions, the judge might side with the business about a customer list and recruitment of employees, but will not deny the employee the right to work.
Many states require employers to provide employees additional consideration if they’re asked to sign a non-compete after they’ve already been working at the company. With non-solicits, additional consideration is not normally required. It’s always a good idea to have employees sign agreements before they start with a company rather than after they have already been working.
What specific information should be included in a non-solicitation agreement?
A non-solicitation agreement that seeks to protect customers and clients should include a definition of which customers and clients cannot be restricted. Is it any current customer or client? Is it someone who has been a customer or client in the past two years? Is it someone who is a prospective customer or client?
The non-solicit should also include a time restriction — for example, “during employment and for two years thereafter.” It should also be limited in geographic scope. For example, is the restriction only in Pennsylvania, for the entire country or some other area?
The law of non-competes and non-solicitation agreements changes from state to state and is in constant flux. Cutting and pasting from older agreements or taking forms from other sources is highly discouraged. Consult with an attorney before drafting and presenting any restrictive covenants to employees.
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