What Is A Non-Solicitation Agreement?
What is a Non-Solicitation Agreement?
Non-solicitation agreements are contracts by which an employee agrees not to induce or solicit the employer’s employees or customers away from the employer.
Like a non-compete, a non-solicitation is a restrictive covenant. Non-solicitations can be either customer-based or employee based. That is, a non-solicitation agreement may prohibit the departing employee from soliciting customers away from the company or it may prohibit the departing employee from soliciting other employees away from the company. A non-solicitation is a narrower restrictive covenant than a non-compete because it is not a complete prohibition on working in the same business or industry .
Non-solicitation agreements are becoming more popular among Washington employers as they wage legal battles to enforce non-compete agreements against former employees. As handed out by courts, non-competes are often toothless as they are declared overbroad and unenforceable. A non-solicit offers far greater chances for success since the employer just has to focus on a narrower argument that some customer relationships are protectable without attempting to protect all customers. Employees are also more receptive to a non-solicit agreement since unlike a non-compete it does not prohibit all types of employment, but only prohibits employment that involves contact with certain customers or employees.
Applicable Law in Washington State
A recent Washington Statute, RCW 49.62, adds to the framework for these types of restrictions and requires employers to take certain steps before entering into a non-disclosure, non-solicitation, or non-compete agreement with an employee. Washington law has never specifically required that employers give employees an opportunity to review a proposed non-disclosure, non-solicit, or non-compete agreement, but it is now the law in Washington that such an agreement is void and unlawful unless the employer gives the employee a copy of the proposed agreement at least ten days before the date on which the agreement becomes effective. Employers should regularly review their non-disclosure and non-solicitation agreements with clients, and update and revise them when necessary. Moreover, and at least with respect to new hires, employers should ensure that their agreements comply with RCW 49.62 beginning July 1, 2016.
Key Aspects of Non-Solicitation Agreements
Non-solicitation agreements typically contain three essential components: (1) the duration of the agreement; (2) the geographic scope and (3) prohibited activities, although the latter components are not always explicitly provided. In other words, while a non-solicitation agreement will always clearly explain how long it lasts, it may or may not explain the geographical boundaries of the agreement or what is prohibited. If the parties do not expressly include any of these components, the courts will apply their own analysis to each, and will seek to ensure that they are reasonable under the law.
Duration
Washington courts have held that a duration term of five years for a non-compete agreement is reasonable. However, non-compete agreements must still be reasonable in terms of the parties involved. A five-year non-compete against a competitor in a rural community may be deemed reasonable because the employee would not have many other employment opportunities. On the other hand, a non-compete against an individual with a high level of education and skills, living in a metropolitan area with numerous job opportunities, can be unreasonably long even if a five-year term is used.
Geographic Scope
Geographic scope is often a matter of how useful the employer thinks that this provision will be. The broader the scope of the non-solicitation agreement, the better chance it will stand up to scrutiny by the courts. Or not. It depends on the business need to protect its interests. For instance, if you are selling your soft drinks to a major retailer and that retailer happens to only have stores in Washington, then a state-wide prohibition from soliciting this major retailer makes sense. However, if you are trying to restrict your employee from soliciting a client that has locations in Washington, Oregon, California, Idaho and Alaska, a non-solicitation agreement that only purports to prohibit solicitation in Washington is likely overbroad and will therefore fail – at least in part.
Prohibited Activities
The prohibited activity component of a non-solicit agreement can be very precise, i.e., stipulating which accounts can be contacted and which accounts cannot. Or it can be less precise and simply prohibit solicitation of accounts that the employee worked on or was exposed to. The more focused the restriction, the easier it is to enforce in general.
Enforcement in Washington State
An important aspect of a non-solicitation agreement is its enforceability in Washington State. Non-solicitation agreements are generally enforceable but, like noncompete agreements, they require consideration to be enforceable. In a nondisclosure context, employers sometimes grant employees a small raise as consideration. With non-solicitation agreements, however, employers need to provide something more than an ongoing paycheck for the employee’s services. It isn’t clear what else an employer needs to provide as consideration for a non-solicitation agreement. Courts sometimes look to whether the non-solicitation agreement was signed around the time that employment begins. That is the only way to be certain that consideration was provided when a non-solicit agreement was signed.
Another important factor in enforceability is whether the non-solicitation provision is overbroad. Washington courts will not enforce non-solicitation agreements that last longer than legally necessary or have a wider geographic scope than necessary. Non-solicitation agreements are not commonly litigated in Washington because these are difficult to draft and then defend in court when challenged by an employee. Business people in Washington have learned to appreciate that these non-solicitation agreements more likely than not will not be enforceable. For this reason, business people have learned to not spend to much time and money in a non-solicit agreement or on defending against an untimely non-solicit agreement challenge. When business people are faced with a situation where a non-solicit is required, their resources go to drafting a narrow non-solicit agreement as opposed to a broad one.
How to Ensure Your Agreement is Valid
Given Washington’s strong stance against noncompetition agreements, employers may find it more challenging to adequately protect their business interests. Thus, it is critical to effectively draft agreements as these will be scrutinized by courts to ensure they comply with the Revised Code of Washington and Washington case law. To best ensure your non-solicitation agreement is enforceable, consider the following best practices:
Carefully Tailor The Agreement:
Employers should ensure that they have a legitimate business interest in the employee’s future restraint. Employers may have a valid business interest in protecting customer relationships, proprietary information and business goodwill, however employers must take care not to overly restrain employees when protecting them.
Be Clear and Concise:
In many states , ambiguity in an agreement means it is not enforceable. Washington State courts are no different. If the agreement is too broad or vague, it will be difficult to enforce in court.
Beware Of Restrictions In Scope:
The two major restrictions for an agreement are the area and time a former employee can serve the employer. Washington courts are generally only going to enforce agreements that are limited in area and for a reasonable duration after the employment ends.
After the Agreement Is Signed:
Make sure you are on notice when an employee leaves. For example, employers should note the date of termination. After the employee has ended his or her employment with the company be aware of any solicitations from the ex-employee to your customers. This is especially true if the company does not have an in-house attorney. Often attorneys can assist in all aspects of litigation including sending cease and desist letters on behalf of the company.
Employers’ and Employees’ Rights
Employers and employees have rights when entering into a non-solicitation agreement. The employer has the right to protect its business. This includes protecting its client and employee relationships from solicitation by former employees. Client and employee goodwill can represent a significant investment by the employer and can be important for maintaining a competitive advantage.
However, the employer’s right is not unlimited and it must be balanced with the employee’s right to earn a living. The employee generally has an obligation to perform his or her job to the best of his or her ability. But this does not mean that the employee has forfeited rights against overly broad contractual restrictions. For example, the employee generally has the right to seek new employment after leaving his or her current employer. Employers cannot attempt to restrain competition and gain an unfair business advantage through overly broad non-solicitation agreements. Courts do not look favorably on such agreements.
Breach of a Non-Solicitation Agreement
If the non-solicitation agreement is still in effect, an employee who violates it can be held liable for any money damages that the employer suffers as a result. Damages include loss of business income and the costs of finding and training a replacement employee. An employer might also be entitled to injunctive relief. This is where a court orders the employee to stop violating the non-compete agreement. Practice Tip: Courts are generally reluctant to punish employees with jail time. However, an employer can ask for compensatory damages and attorneys’ fees.
If the agreement is no longer in effect or is unenforceable, the employee won’t be liable for any loss of business income as a result of the employer’s counterclaim. However, the employee might be held liable for not holding up his end of the bargain as agreed to in the non-solicitation agreement . If the employee agreed to not disclose sensitive information about his employer’s business the employer could sue to enforce the agreement and ask for compensatory damages and attorneys’ fees. For example, if the employee worked at an accounting firm he might agree not to solicit his employer’s clients for six months after leaving the company. If the employee agrees to this he has 6 months where he can’t contact his former employer’s clients in order to create a new working relationship. During that time, the former employer may not hire any new employees and therefore will not be able to bill clients. The current employer may seek compensatory damages and attorneys’ fees from the former employee if he were suits by his former employer.