All About Non-Solicitation Agreements
Non-solicitation agreements are not contracts that only large companies use. Rather, they are increasingly in use by a wide variety of employers. Indeed, some jurisdictions, such as New York, have a statute requiring such agreements for employers with administrative exemptions under the Fair Labor Standards Act. These agreements are designed to protect against the potential of lost business when a departing employee could take with him or her your existing customers and/or potential customers.
A solicitation agreement is not a non-compete agreement. It does not limit where you can go or work, and if the restrictive period is properly drafted, it does not impact your ability to go with the competition, and still do your old job. However, it does limit who you can solicit or work with when you leave that particular employer.
A non-solicitation agreement may prevent you from soliciting business from your employer’s customers, but it does not prohibit you from working with those customers so long as you did not solicit them while employed. There is a big difference, one that I frequently see small companies lose sight of. For example, if you develop pre-existing relationships or goodwill with a customer during your employment without solicitation, then after you leave, the customer may want to continue to work with you. In that case, the customer may be compelled to work with you, and you may be legally permitted to do the work. But, you cannot solicit that customer until the restrictive period has expired.
These agreements can restrict solicitations for a variety of purposes , such as sales, marketing, or procurement. In other words, sometimes a company will prohibit you from soliciting customers, or clients in the law context, to purchase goods, while at other times, your former employer may restrict you from soliciting a customer to purchase services.
In addition, many non-solicitation agreements restrict you from performing services for those customers, even as a conversation to renew a relationship. In other words, under some circumstances, if you are contacted by your former customer for new business you cannot respond and perform the services or else you may be in violation of the agreement.
A non-solicitation agreement generally has both a time and a geographic (or scope) restriction. Most commonly, it will last anywhere from six to two years, depending on the circumstances. And the geographic restrictions normally are limited to the area where the employee is located, as most noncompete agreements limit the prohibited working to within the geographic area in which you worked as the employer’s employee.
A common time period is six months after termination of employment. Many employers use a two year restriction for law clerks and recent law school graduates, on the premise that you have no real clientele upon departing your employer, and thus they might have time to recover from the departure by then. But again, this is all highly fact-specific, and can vary depending upon the employer and the industry.
Determining If Your Agreement Is Legal
The laws vary from one state to another, so it can be difficult to determine whether your non-solicitation agreement is enforceable or not. The following considerations should help you to better understand how the law in your state will likely be applied to your non-solicitation agreement.
An agreement’s enforceability is generally decided in two steps. The first step focuses on whether the restraint against competition is reasonable from the standpoint of public policy. The second step examines whether the restraint is enforceable according to the agreement’s terms. A restrictive covenant (which this type of agreement is) or non-solicitation agreement is only enforceable when it is both:
• Reasonable in time and geographic scope, and
• Necessary to protect a legitimate business interest. The reasonableness of the agreement usually turns on the facts of the situation. The geographic scope for each agreement really depends on the particular situation. For example, a national company may want to prevent its employees from working in any country. In such a situation, the geographic scope may be deemed reasonable. Alternatively, a small company that has a business presence in one state would argue that its interest in protecting its business only requires a smaller geographic scope (e.g., within its State or City). Another important factor in determining the reasonableness of a restrictive covenant is the effect of the covenant on the employee. For example, an agreement may be deemed unreasonable if it denies the employee the ability to work in a field for which he or she has been specially trained. That said, courts are often careful to protect employers’ rights to define their legitimate business interests.
Seeking To Modify Non-Solicitation Requirements
To the extent a non-solicitation agreement is overbroad and unreasonably restrictive, an employee may be able to seek modification of the agreement to render it enforceable to the extent reasonable. For example, although many non-solicitation agreements are drafted to be applicable for a wide range of solicitation (i.e., all solicitation of any type), an employee may be able to limit the scope of a non-solicitation agreement just by asking his or her employer to modify it to make it more reasonable.
For example, if the non-solicitation agreement prohibits solicitation of customers, referral sources and employees, an employee may be able to convince the employer to amend the agreement to prohibit solicitation of only referral sources and other employees. The former category of prohibition would involve the employees’ own customers, which presumably the employees would be in the best position to solicit, if at all, due to their intimate knowledge and prior relationships with those customers.
Similarly, the non-solicitation agreement may cover a broad category of specific customer accounts. To the extent that any of those by their nature do not really fall within the ambit of solicitation restrictions reasonably necessary to protect an employer’s legitimate business interests, and thus are not fully enforceable under Pennsylvania law, an employee may be able to convince the employer to limit the non-solicitation agreement to prevent only solicitation of certain clearly protectable accounts. This should be particularly possible in cases where some of the other allegedly proprietary forms of information that the employee received from the employer are not truly protectable.
An employer may even be willing to agree to modify a non-solicitation agreement from the outset if a prospective employee makes clear that he or she will not otherwise join the employer. For example, an employee may have been working for an out of state company in the same industry, and wishes to change jobs but knows that the potential employer has a "take all" solicitation agreement that would apply to the employee’s existing customers.
If the non-solicitation agreement is not disallowed as a matter of public policy in Pennsylvania, or it contains no arguably unacceptable or invalid terms, then the employee’s best course of action upon receiving the non-solicitation agreement may be to attempt to have his or her employment offer accepted with some terms of the non-solicitation agreement deleted or modified.
Consultation With Attorneys
Navigating the complexities of non-solicitation agreements can be challenging, particularly when faced with termination or transition to a new employer. However, taking the time to consult with an experienced attorney can offer significant advantages. Legal professionals with expertise in employment law can help demystify your agreement and provide a clear understanding of your rights and responsibilities.
One of the most crucial roles of an attorney is to ensure that you fully comprehend the agreement that you signed. It is not uncommon for individuals to feel overwhelmed by legal jargon and details they do not fully understand. A lawyer can translate the agreement into layman’s terms, ensuring that you know exactly what types of solicitation activities are prohibited and for what duration of time. The clarity this brings enables you to stay within the bounds of the agreement and avoid any potential legal issues.
Often, the legal landscape of non-solicitation agreements can be difficult to navigate on your own . Many states have different laws and regulations regarding non-solicitation agreements, which can determine its enforceability. Attorneys familiar with these rules can help identify if the agreement is enforceable, and can then devise strategies for compliance that are both practical and lawful.
In cases where non-solicitation agreements are deemed overly broad or too restrictive, an attorney can work to negotiate its terms with your current employer such as, reducing the territory covered by the agreement or the time period in which the restrictions apply. They can also help in identifying potential loopholes that can allow you to move forward in your career with less concern over breaking the terms of your agreement.
Finally, in the unfortunate but not uncommon event where you are faced with a lawsuit from your current employer, an attorney can provide indispensable assistance. They can assist you in responding to the lawsuit, representing you in court, and negotiating settlements that serve your best interests.
Alternatives And Work-Arounds
Despite the very real limitations imposed by a non-solicitation agreement, there are usually a number of different ways of working within those confines. It may involve using promises of great service to build a new clientele; marketing the business in new ways or in different markets; or simply ramping up print advertising and television and radio exposure. Many start-ups have found that it is better to go hang their shingle in a new city, in which case the former employee would be free of the limitations and able to solicit business from the former client base.
There are also times when the former employee can attempt to negotiate a buy-out, or settlement, with the employer in return for early retirement of the non-solicitation agreement. Finally, there are times when the non-solicitation agreement is not enforceable or enforceable in its asserted form (e.g., it is too broad; contains illegal clauses; not supported by adequate consideration; contrary to public policy; or the employer has waived the protections of the agreement).
Examples & Illustrations
Over the years in my practice I have advised many individuals in their negotiations and/or litigation over non-solicitation agreements. Below are a few of these individuals who I have helped to navigate these agreements.
A Senior Vice President of Sales had a five year non-solicitation agreement which prohibited him from soliciting his former employer’s customers and clients for a period of three years after leaving his job. That non-solicitation provision was also subject to a continuing three year extension. In short, he wanted to leave his job and move on to a more lucrative position where he could help recruit some of his former employer’s sales people and clients for his new employer. Not only did I negotiate a settlement for him pursuant to which his non-solicitation restrictions would be cut in half but we negotiated a contract with his new employer which negated the non-solicitation restriction altogether. Score: $120,000 in legal fees, settled non-solicitation provision after three years, obtained relief from the restriction in the first place.
A Director of Finance and Accounting had a two year non-solicitation provision which prohibited him from soliciting his former employer’s customers and clients for a period of two years after leaving his job. He wanted to move to a much larger company with a more lucrative compensation package. However, his non-solicitation agreement would restrict that until after two years. We negotiated an amendment to his prior agreement banishing the non-solicitation provision so it no longer would be any impediment to his new employment .
An Executive Vice President had a one year non-competition restriction which prohibited him from going after the buyers and end-users of his former employer in a geographic area that he was expected to work about a three hour flight from home. He wanted to take a position that would not be interfered with as well as provide him with an opportunity to be back home more often. He had a long history at his job at his former employer but his written agreement did not provide for any severance or compensation beyond the date of termination. It permitted the Company to extend his cash "at risk" compensation up to an additional two years, essentially trapping him there. I was able to negotiate a good deal which got him over $1.5 million in cash to start fresh and relocate, all without the non-competition restriction.
A Project Manager for construction with a small engineering and land surveying firm had a non-compete provision which prohibited him from providing any consulting services of any type whatsoever to anyone, anywhere, after leaving his job. He wanted to join a much larger and better established firm that needed his services and expertise. The provision was so excessive that it would effectively "tie him to the mast" (as it was explained in Homers The Odyssey) and keep him forever bound to his tiny firm. We negotiated a release of the non-competition restriction as well as a good severance package that would provide compensation throughout most of the following year where I recommended that he obtain new skills and find another career path.