Illicit Soliciting: Non-Solicitation Provisions in Employment Contracts - November 2017

Terry Jessop & Bitner Newsletter

Issue 47, November 2017

Many employment agreements include restrictive covenants to prevent employees from hurting the company. A previous newsletter dealt with Utah's recent Post-employment Restrictive Covenants Act as it relates to non-compete agreements. However, a covenant not to compete is only one restriction usually found in employment agreements. Many agreements also contain non-solicitation provisions. Regardless of whether a former employee is restricted from competing against the company, a non-solicitation provision prevents an employee from attempting to convince a client or another employee to abandon ship.

Non-solicitation covenants have a more focused purpose than non-compete provisions. They help preserve a company's goodwill when a former (or current) employee wishes to harm the company's business relationships. Without a non-solicitation restriction, an employee who is otherwise not competing with the company may feel free to contact current clients, employees and even suppliers and attempt to convince them to terminate their relationships with the company. If successful, a key employee may cause a lot of damage to a company's bottom line. With a non-solicitation restriction, the former employee agrees to refrain from doing so.

"You Keep Using That Word, I Do Not Think It Means What You Think It Means"

While it may seem obvious, it is important to define what constitutes "solicitation" in the agreement. Sometimes employers fail to define the term. In such cases a court will default to the dictionary definition. Hence, an employee may not be in violation of the covenant if he merely informs a client that he left the company and is now working for a business that he likes much better. But if "solicitation" were defined as something like, "direct or indirect contact, with the intent to induce or cause the client to terminate or lessen its business relationship with the company," then a court is more likely to find a violation of the covenant when an employee contacts clients to tell them he found a better business. The company may want to take it one step further and prohibit the former employee from doing business with a client for up to a year.

Another restriction that is often included in non-solicitation provisions prevents the former employee from soliciting current employees to leave the company. A non-solicitation provision may also prevent a former employee from inducing or attempting to convince a supplier from lessening or terminating its business relationship with the company. A stout non-solicitation provision will also include a mechanism for enforcement, such as the right to an injunction and payment of attorney's fees. These restrictions will prevent a disgruntled employee from hurting the company.

Soliciting Your Business

Having a well-drafted employee agreement is one of the best ways to minimize damage when a key employee leaves. A non-solicitation provision helps preserve the goodwill of a company regardless of whether a former employee chooses to compete with it. If you need help drafting restrictive covenants in your employment agreements, please contact us.

© Terry Jessop & Bitner November 2017