The primary purpose of a non-solicitation clause in a contract of employment is to protect the employer from having its customers, clients, suppliers, or employees poached by a departing employee. Without a non-solicitation clause in an agreement, it is extremely difficult to stop an employee from stealing the clients that he or she developed a close relationship with while working for the company.
Typically, only the most senior directors, officers, or other “key employees” can be pursued for damages without such an agreement in place – if they can be established to be fiduciaries to the company. A fiduciary is someone who has a duty to put the company’s interests ahead of his/her own. This duty of loyalty to the company continues for a period of time even after termination of employment. Salespeople and other regular employees are not fiduciaries and, as such, a non-solicitation agreement is critical if there is any risk that these employees could cause harm to the employer when they leave. They are also critical in the case of senior level employees in that they clearly set out what is expected of them in advance.
When companies are thinking about how to protect their trade secrets or book of business, the first thing that often comes to mind is a non-compete. Although in some circumstances a non-competition clause may be necessary and appropriate to protect the employer’s interests, in most cases, a non-solicitation clause is better. This is because, when properly drafted, a non-solicitation clause is more likely to be enforced by a court if challenged. Non-competition clauses are frequently struck down by the courts as being unreasonable, more restrictive than necessary, or in restraint of trade (i.e. contrary to public policy).
Non-solicitation clauses, on the other hand, can be narrowly drafted so that they reasonably protect the employer from harm to its business, while at the same time still allowing an employee to earn a living. This doesn’t mean that non-solicitation agreements will always enforceable though. If a non-solicitation clause is too broad, ambiguous, or far reaching, it will also be struck out. Employers are therefore advised to seek legal counsel about any non-solicitation clauses they wish to implement to ensure that they will withstand scrutiny. Employees should also seek legal counsel if they are being asked to sign an agreement that will effectively prevent them from working for a period of time after termination.
Author: Priya Sarin, Whitten & Lublin