Noncompete Agreements: Stopping Former Employee From Soliciting May Not Protect Business
In drafting noncompete agreements, employers and their lawyers often drafting language that prohibits a former employee from soliciting the customers or clients of the employer. The problem is this language often does not go far enough to protect the former employer.
This scenario occurred in a recent case we handled for an employee. He was prohibited from soliciting the customers of the former employer. The question bolied down to whether the employee solicited a former customer by accepting employment with the former customer.
Although there were other factors bearing on the case, the court ruled that responding to an employment advertisement was not a solicitation that would prohibit the former employee from working with the former customer.
This same situation has occurred in circumstances where a former customer of an employer initiates contact with a former employee rather than the former employee initiating the sales contact with the customer. In those instances, if your noncompete agreement merely prohibits solicitation, your business will not likely receive the protection it desires and the employee may be permitted by a court to work with that customer.
The better approach is to indicate in your agreement that the former employee may not become employed by, work with, or accept business from the former customer in any way. Just like a coin there are two sides to worry about: 1) the former employee's actions; and 2) the former customer's actions. A prohibition against the employee's solicitation only protects 1/2 of the coin.
Rush:
One argument that has received short shrift in noncompete cases is the "necessary" portion of the "reasonably necessary to protect the employer's business" basic noncompete test. In situations where I have been confronted with a noncompete that is solid in terms of duration, geographical scope, and activities precluded, thus making it difficult to invalidate, I have tried with little success to fall back on the argument that, for various reasons, the noncompete is not necessary for the employer's protection. That argument should, but has not yet, carry significant weight in cases in which either the employer already faces stiff competition, regardless of the former employee's addition to the competitive field, or the prohibited conduct is not particularly special in nature, particularly if the employee received no real training from the employer. I have not had a judge give careful consideration to the "necessity" argument; most look at the temporal and geographical scope and end there. But, because noncompetes seem to be increasingly common across the entire employment spectrum, a focus needs to be made on the necessity of noncompetes before cashiers at stores and fast food restaurants find themselves signing noncompetes as a condition of employment.
Harley,
I often see the same thing with respect to noncompetes. Too often, businesses ask employees to sign noncompetes when there is no necessity to protect the employer's business. For example, would a janitorial employee (without any sales responsibility) really need a noncompete? Probably not but I have seen it nonetheless.
My strategy (most of the time) is that I try to tailor noncompetes to protect the employer from the former employee stealing his or her customers and clients rather than attempt to have a blanket prohibition against competition for the specific industry itself. Reasonableness and common sense needs to prevail when using noncompetes. Not every position requires a noncompete to protect the business.
Thanks for the insightful comment.