What is a non-solicitation (non-solicit) agreement?
A non-solicitation agreement is a type of contract between an employee and an employer in which the employee agrees that he or she will not solicit, recruit or otherwise attempt to transfer any employees of the employer away from the employer for the purposes of establishing employment with a competitor of the employer. Essentially, these agreements are in place, as the name implies, to restrict the employee from recruiting or soliciting other workers to leave their jobs with the employer.
There are a variety of employments where these types of agreements are common, including in high-level executive positions with substantial contact with many workers. They can also be used in situations where the employee has access to a large pool of any types of workers, or particularly sensitive information about employment practices that may not be known to those outside of the company.
The reason for these agreements is to protect the interests of the employer. If an employee leaves their position and takes substantial numbers of employees with them to a new company , this could cause a significant amount of harm to the original employer, as they would have lost a portion of their workforce to a direct competitor. Furthermore, the employees who remain after those who leave may have no choice but to pick up the slack for those who left, and could face decreased morale if they see their fellow workers abandoning ship in this way.
Like any other kind of employment agreement, non-solicitation agreements must be reasonable in order to be enforced. This means the courts will look at a few key elements, including:
These aspects are integral to whether the court believes the agreement is justified in limiting the particular employee’s ability to work for a different company. If the employee is agreeable to signing this type of contract, it’s useful to know what is and is not a reasonable clause to be entered into the contract.
Non-Solicitation versus Non-Compete in California
In California, non-solicitation agreements are independent of the company non-competes. A non-competition agreement prevents the employee from entering into a similar profession or trade in competition with the employer, and is unlawful under California Business and Professions Code Section 16600. On the other hand, a non-solicitation agreement only prevents the employee from soliciting either customers or employees of the company after employment has ended. While a non-compete is subject to California’s prohibition against restraining employees from entering into their occupations or from trade, a non-solicit typically gets more leeway from the courts.
In California, an employer would need legitimate, protectable business interests to support its non-solicit agreements. Here are several reasons why non-solicit agreements may be ideal:
• Courts will usually uphold non-solicit agreements based on the investment the employer has made in its employees/clients. A covenant not to compete will almost always be void, as in California competition is encouraged.
• Courts have held that if an employee is privy to clients and customers of the employer through the duration of their employment, they should be prevented from using this information, which can be supported by a non-solicit agreement.
• Non-solicit agreements are enforceable in a dispute against an employee only, while a covenant not to compete can be enforced in claims against both the employee and their new employer.
• Courts have reasoned that the equitable nature of a non-solicit agreement (i.e., without them, an employee can freely flourish in his or her new employment, and so can the old employer’s business), is sufficient to provide grounds for the non-solicit agreement’s enforcement.
The enforceability of non-solicit agreements is somewhat concentrated in the circumstances of the business environment at the time that the employee leaves the company. For example, if the circumstances under which an employee left their company was inherently unfair or unethical, the employer may have trouble enforcing a non-solicit agreement against its former employee, even if the only thing the employer was attempting to prevent was the solicitation of its customers or employees.
While non-solicit agreements are far easier to enforce than non-competes, it is best for an employer to have its non-solicit review by a California attorney who is experienced with litigation issues. Because California courts generally favor competition, careful, and narrow drafting of the agreement is important to ensure its enforceability.
Enforceability In California
The enforceability of non-solicitation agreements and covenants not to compete under California law has been a topic of notable interest and differentiation from other jurisdictions. Under California Business and Professions Code section 16600, every contract that restrains an individual from performing lawful profession, trade, or business is void, making non-compete clauses in employee agreements invalid and unenforceable.
Unlike non-compete agreements that are strictly prohibited, non-solicitation agreements can be enforceable in California as long as they meet certain criteria. According to the California Court of Appeal decision in AMN Healthcare Services, Inc. v. Ayers, under Business and Professions Code section 16600, non-solicitation provisions have been found enforceable if (1) there is a necessary protection of a substantial employer interest and (2) there is a narrow restraint on the employee’s post-termination of employment activities.
However, the California court system does not follow legal precedent so there are no guarantees that non-solicitation provisions will be followed or adhered to by California courts. The nuance of statute prior court cases and their application to new fact patterns can be arguable and uncertain, not affording employers and employees with certainty when those matters ultimately end up before a judge or jury.
The application of non-solicitation agreements may be enforced with limited scope and breadth as some California courts have narrowed their application. Those courts have held that the restriction in a non-solicitation agreement must reflect only a limited use or disclosure of confidential proprietary information that is necessary to protect an employer’s legitimate interest in that information; that the scope of a restriction on solicitation has to be justified with respect to the nature of an employer’s interests and a legitimate act of the employee in breach of contract and that the employer’s interests must outweigh the employee’s interests, the public policy and the interests of parties involved. These courts also have asserted that it is necessary for the employer to demonstrate that the interests are no longer provided adequate protection through less restrictive alternatives.
Common Elements of a Valid Agreement
Non-solicitation agreements are analyzed under the California standard for determining whether a restrictive covenant is enforceable under California law. An agreement is not enforceable where the restraint of trade or reinstatement of competition is greater than is necessary to protect the employer’s lawful business interests. (Edwards v. Arthur Andersen LLP (2008) 44 C4th 937, 946-947; Blue Pencil rule.) The California standard for determining whether the agreement is enforceable generally requires the restrictions be reasonable in four areas: (1) Length of time of restriction (2) Geography of restriction (3) Scope of activity restricted (4) Scope of activity persuaded to cease Whether the non-solicitation clause will be struck down as overly broad depends on what constitutes a solicitation. For instance, a former employer may not even want an ex-employee to communicate with competing employers in any capacity, including an introduction and wetting the new contact’s appetite. An agreement that is struck down for being overbroad might not be so overbroad if the scope of prohibited activity was more precisely limited. The key to drafting a non-solicitation agreement that will, in most circumstances, hold up under scrutiny is to balance what is necessary to protect your business interests versus what is overbroad. The reasonableness of the restriction must be determined by the particular circumstances surrounding the industry or market segment which the parties are familiar. The court will not focus solely on the language of the agreement but will also consider the real-world facts, context and background; it may consider what the industry standard is for similar restrictions and learn from it.
Potential Legal Issues
A potential legal challenge to a non-solicitation agreement in California is whether the non-solicitation provision is reasonably limited in time and scope. Even though there is no statutory requirement to have a limit, the general rule is that a restraint will be stricken for lack of limitation to a period of time, that the restraint is more extensive as to duration than necessary, or that the restraint is unreasonable under the circumstances of the case. Not uncommonly, the issue boils down to whether the non-solicitation provision runs (and is enforceable) with respect to the individual (i . e., person) the former employee hired away from his or her former employer. Should the non-solicitation provision be drafted with such a perspective, the likely outcome is that it will be upheld as reasonable. Moreover, since there can be no business interest in restraining a former employee’s right to hire an employee who voluntarily terminated the employment relationship and sought new employment opportunities, the Court may very well conclude that the non-solicitation provision would not be contrary to a public policy (either the employer’s or the State of California’s).
Employer Drafting Considerations
Employers should understand the contours of California’s non-solicitation of employees rule, and the limited exception to that rule. Generally, a carefully drafted non-solicit agreement can protect an employer’s valuable relationships with its employees. Here are some drafting tips for employers to consider to ensure their non-solicit agreements comply with California law and do not run afoul of California’s limitations on restrictive covenants:
- List specific employees or classes of employee the former employees are prohibited from soliciting. For example, the non-solicit agreement could identify specific employees by name or by job title (e.g., all warehouse employees) the former employee is prohibited from soliciting.
- Include time limits. A 12-24 month limitation on the non-solicitation is reasonable in scope, but anything longer may be found overreaching. As previously noted, in order to show a legitimate business interest, an employer must be able to identify the employees with which the former employee has a relationship.
- Consider narrowing the scope of the prohibited activity to exclude categories of employees whose employment, such as recent college graduates, is transient in nature. This may be unnecessary if the parties’ relationship is for a longer term, or there has been a pattern in which your business has had many transient employees.
- Include a carve-out that the foregoing will not be enforced if the employee breaches his or her own post-employment obligations (see above for more details).
- Include language that the agreement will not preclude the former employee from engaging in any other lawful business activity after his or her employment concludes (e.g., solicit employees who are not subject to the non-solicit restriction).
- Consider addressing damages and an attorney-fees provision should a dispute arise regarding the enforceability of the non-solicit agreement.
Employee Considerations
As a California employee asked to sign a non-solicitation agreement, you should consider the following:
If you do not hesitate when asked to sign a non-solicit agreement, and you have protected information that you could not otherwise share under that agreement, you may be in violation of your employment agreement before you even start the job.
Even if you resign from that job, as long as you have protected information, you cannot use that information to solicit other employees from your former employer within the restricted time period. You will be surprised at how long that period may be , as well as how significant of a challenge it could be for you to find work with other professionals in your industry.
A non-solicitation agreement may not prevent you from finding work in your field at all, but these agreements can take away your mobility as an employee and can have a substantial impact on your professional reputation.
If you are finding it difficult to negotiate the terms of a non-solicit agreement, you may want to get outside legal assistance.