Everything You Need to Know About Non-Solicitation Agreements
Date: 07/07/2022
Author: Prime Law Group
Many businesses prioritize establishing and maintaining a clientele and, as such, invest time and money into developing a confidential list of clients. To safeguard this valuable data, employers may require that employees sign a non-solicitation agreement, which prevents employees from quitting their jobs and then pursuing the same clients for a competitor.
The legal concept of “solicitation” generally refers to approaching clients to convince them to work with a different or rival business. A non-solicitation agreement is a contract between an employer and an employee that regulates an employee’s right to pursue clients after leaving their current job. Typically, the employee agrees not to approach the company’s clients for a predetermined amount of time after leaving the company.
A non-solicitation agreement is generally incorporated within a broader legal document, including but not limited to a contract of employment, a confidentiality agreement, and a non-competition agreement. However, there is no regulation mandating that this be the case. For instance, an employer who wishes to secure only its client list may establish a stand-alone non-solicitation contract. An employee can be presented with a non-solicitation agreement at any stage throughout the employment relationship. As part of a severance settlement, for instance, an employee may be required to sign a non-solicitation agreement.
What is Included in a Non-Solicitation?
To be enforceable, the non-solicitation agreement must be specific as to the prohibited activities and include a timeframe during which the employee is not allowed to solicit business from the employer’s clients, suppliers, or staff.
Here’s an example of what a non-solicitation clause would look like: For the duration of the Employee’s service with the Employer and for a period of two years following the date their employment terminates for whatever reason, the Employee agrees not to:
(a) recruit, hire, or solicit for hire, any individual who is currently employed or contracted by the Employer, or who was employed or contracted by the Employer within six months prior to the Employee’s solicitation;
(b) engage in any behavior that could reasonably be expected to result in the termination of another individual’s engagement or employment with the Employer. This includes, but is not limited to, attempting to induce said individual to leave their current position;
(c) engage in any activity that would interfere with the employer’s relationship with any contractors, consultants, or employees;
(d) engage in any activities that would interfere with the Employer’s relationships with its customers, including but not limited to solicitation or encouragement of customers to discontinue or reduce their business with the Employer.
(e) interfere in any manner with the employer’s interactions with its suppliers, distributors, service providers, or other business partners.
When is a Non-solicitation Agreement Used?
Companies frequently utilize non-solicitation agreements with employees who engage often with clients, consumers, and coworkers. For instance, a physician’s office administrator would presumably have access to a confidential list of clients, and a salesman at a firm that sells to other companies would probably establish strong connections with each customer.
These contracts exist to safeguard vital employee and client relationships. Non-solicitation might also apply during the sale or reorganization of a corporation. The conditions of the sale may contain a transitory non-solicitation clause prohibiting the prior owner from taking some or all of the personnel upon departure.
Non-solicitation agreements may also be used to determine IP ownership. If the employer specifies that any inventions, trademarks, copyrights, and proprietary information created by workers on the job belong to the firm, it makes it easier for the corporation to retain them when the employees leave.
Employers may propose a non-solicitation agreement to an employee at any time, from before the work begins until the end of the employment relationship. The optimal time is before the start of employment, since employers may then make it a requirement for employment.
What Makes a Non-Solicitation Agreement Enforceable?
Depending on the state, non-solicitation agreements are likely to be enforced provided they do not make it extremely hard for an employee to earn a livelihood or unduly restrict a competitor’s capacity to acquire employees or attract consumers via lawful means.
To be binding, a contract must fulfill these basic conditions:
- Employers are required to have a good business justification. This can include protecting a valuable client list, trade secrets, or other important information; or preventing the mass departure of valued personnel with specialized skills, expertise, and access to proprietary information.
- The client list must merit safeguarding. If the goal of a non-solicitation agreement is to safeguard a firm’s client database, the company must have invested significant time, effort, and resources in developing its clientele, which must include information that is not easily accessible to the general public. A court is unlikely to safeguard a company’s customer list if anybody may determine who its customers or clients are simply by consulting the phone directory.
- Customers and employees are free to withdraw willingly. Non-solicitation clauses cannot prohibit a client or employee from willingly joining a rival. As long as the leaving employee has not unlawfully recruited them (and the employees are not bound to actionable non-solicitation contracts), there is nothing a corporation can do to prevent its other personnel from joining a leaving employee at a new firm. Similarly, if clients choose to switch their business to a rival, a non-solicitation agreement will be of little use, unless the leaving employee unlawfully coerced them or utilized the previous employer’s data (such as a price list) to obtain their business.
The New Illinois Law on Non-Solicitation Agreements
As of January 1, 2022, employers in Illinois are prohibited from entering into non-solicitation agreements with workers earning less than a specified annual salary. The basic wage criteria for non-solicitation contracts will rise by $2,500 every five years through 2037.
Additionally, employees terminated due to the COVID-19 outbreak cannot be legally bound to non-solicitation agreements unless the contract provides compensation in an equivalent amount to their basic pay at the time of termination, minus any compensation they may receive from job-related activities.
Lastly, before signing non-solicitation agreements, Illinois employers must counsel their workers in writing that they should seek the advice of a legal professional. A copy of the agreements must be sent to the employee at least 14 days before the start of work, or the employee must have at least 14 days to evaluate the agreements.
The new limits only apply to non-solicitation agreements made on or after January 1, 2022, and have no bearing on agreements inked prior to that date.
We are Here for You
Employers should never offer their employees anything to sign on the sly. Similar to end-user licensing agreements (EULAs), courts do not require people to read the whole of some contracts. Employer contracts are a separate issue, and their duration is irrelevant. It is crucial to remember that non-solicitation agreements may also be hidden in staff handbooks, share options and bonus awards, retirement programs, and other locations. A non-solicitation agreement might be included in the stack of documents that new workers sign before beginning a new job.
When requesting that an employee sign a non-solicitation contract, it is not in the employer’s best interests to request that the employee sign an unfair non-solicitation agreement. Such a contract would be less likely to be unenforceable and attempting to enforce it may involve substantial legal expenses for the employer. A seasoned attorney may be an important tool not just in creating restrictive covenants, but also in circumstances when an employer seeks to enforce a non-solicitation contract against a former employee.
When requested to sign a non-solicitation agreement, employees should think about whether the arrangement is appropriate. This is when a qualified attorney might come in handy. If the non-solicitation contract is extremely broad or might impair the employee’s capacity to work in the same profession afterward, the provisions of the non-solicitation contract may well be negotiated to make it more acceptable. A skilled attorney can also be useful when an employer is attempting to impose a non-solicitation contract against a former employee.
At Prime Law Group in McHenry County, we have experienced non-solicitation agreement litigators that have a wealth of knowledge when it comes to writing and challenging these contracts. Whether you are contemplating signing a non-solicitation contract, need to evaluate whether a clause is binding, or need help drafting an enforceable non-solicitation agreement, our experienced and professionally trained non-solicitation agreement attorneys can help you choose the optimal form of action. To schedule a consultation, please fill out our online form or give us a call at (815) 338-2040.
