Many businesses use non-solicitation agreements with employees, contractors, and joint ventures to ensure that other parties do not use confidential information and relationships to steal a business’s customers. Non-solicitation agreements ensure that businesses can allow workers or partners to contact and work with their customers without the worry that a worker might leave the company to work for a competitor and take the customers with them.
However, drafting an effective and enforceable non-solicitation agreement requires careful evaluation of legal issues and contract drafting. Let the legal team at Mitchell & Sheahan, P.C., help your company establish non-solicitation agreements that protect its interests. Contact us today for an initial case evaluation to learn more about non-solicitation agreements and how they may help your business.
Key Provisions of Nonsolicitation Agreements
A non-solicitation agreement will include several necessary provisions, including:
- Restricted Parties – A non-solicitation agreement may specifically identify parties that an employee, contractor, or partner may not solicit for business or describe a category of parties covered by the agreement.
- Prohibited Activities – Non-solicitation agreements may specifically describe the types of activities that constitute solicitation in violation of the agreement, such as proactively contacting clients or customers; a non-solicitation agreement may not prohibit clients or customers from proactively contacting a former employee covered by the agreement.
- Duration and Geographic Scope – An employee’s non-solicitation agreement may preclude the employee from soliciting their employer’s customers for another business during their employment and for a specific period after their employment ends (such as one year after termination of employment for any reason). Non-solicitation agreements may also have geographic limitations, precluding employees or contractors from soliciting a company’s clients in a specific region.
How Nonsolicitation Agreements Work
Under a non-solicitation agreement, a party, such as an employee, contractor, or business partner, agrees not to contact a company’s customers, clients, vendors, or other parties to solicit them to do business with its competitors. Non-solicitation agreements come into effect while the employee or contractor works for the company and last for a specific period after the termination of the employee’s or contractor’s relationship with the company.
A non-solicitation agreement may form part of a more extensive restrictive covenant agreement containing other provisions like non-disclosure or non-compete agreements. These prohibit employees, contractors, or business partners from using the company’s confidential information, providing it to third parties, or engaging in business competition against the company.
Enforceability of Nonsolicitation Agreements
Courts will enforce non-solicitation agreements if they find them reasonable in scope and related to preventing misuse of a business’s confidential information and contacts with clients, customers, or suppliers. Factors that courts consider when evaluating the reasonableness of a non-solicitation agreement include:
- Duration – Courts may reject or modify a non-solicitation agreement with an unduly long duration after the termination of an employment or contractor relationship or partnership.
- Scope – A court may reject a non-solicitation agreement with a scope of restrictions that is too broad, such as an agreement preventing a party from soliciting the company’s potential customers.
- Fairness to Parties – Courts may consider whether the scope of a non-solicitation agreement effectively prevents an employee, contractor, or business partner from practicing their chosen profession.
- Adverse Effects on Public Interest – A court may decline to enforce a non-solicitation agreement if it finds that doing so might harm the public interest in some manner, such as preventing a physician from seeking patients in a region underserved by medical providers. Courts will also balance a company’s interest in preventing misuse of its confidential relationships with clients, customers, or vendors against the interest in preventing anti-competitive conduct.
Advantages and Disadvantages of Nonsolicitation Agreements
Non-solicitation agreements can have various pros and cons for businesses. Some of the advantages of these agreements include:
- Protection of client relationships that employees, contractors, or business partners may become privy to
- Reduction of the risk of competitive losses when employees, contractors, or partners leave the business to join a competitor
- Maintaining a stable work environment and employee base, as workers have less incentive to leave a company if they cannot take its customers with them
Some of the disadvantages of non-solicitation agreements include:
- Pushback from prospective employees, contractors, or business partners who may find a non-solicitation agreement too restrictive
- Potential enforceability issues and legal challenges to the scope of the agreement
- The need to monitor the activities of employees, contractors, and partners subject to non-solicitation agreements
Nonsolicitation vs. Non-Compete Agreements
Although non-solicitation and non-compete agreements accompany each other in restrictive covenant agreements, these provisions differ in purpose and restrictions. A non-solicitation agreement prohibits a party from “stealing” a company’s customers, clients, or vendors using the company’s confidential information or relationships that the employee, contractor, or business partner developed while working for the company.
Conversely, a non-compete agreement precludes an employee, contractor, or business partner from starting a competing company, which may seek to solicit the company’s current customers or the same pool of prospective customers.
Remedies for Breaches of Nonsolicitation Agreements
When an employee, contractor, or business partner breaches their non-solicitation agreement, a company may have various legal remedies they can pursue. First, a company may send a breaching party a cease-and-desist letter to convince them to stop soliciting the company’s customers or vendors.
A company may also pursue legal action against a breaching party to seek remedies in court, such as an injunction that prohibits the party from continued violations of the non-solicitation agreement and financial compensation for losses caused by the breach, including lost sales or profits. Finally, a company may also have a claim against the breaching party’s new employer for tortious interference with contractual relations if the new employer knew about the non-solicitation agreement and encouraged the former employee, contractor, or business partner to breach the agreement.
Contact Our Stratford Employment Law Attorney Today
When your company needs to draft non-solicitation agreements with employees and contractors to protect your business interests, turn to an employment law attorney from Mitchell & Sheahan, P.C., for advice and assistance. Contact our firm today for an initial consultation to learn more about non-solicitation agreements and discuss your business’s legal options.
Mitchell & Sheahan, based in Stratford, CT, also serves clients in Fairfield County, New Haven County, Greenwich, Danbury, White Plains, and New York.