On this page, we’ll explain what non-solicitation agreements are, why they matter, and delve into their powers and limitations.
As with any legal contract, we can only understand these agreements by examining them from the perspective of both parties.
To start off, let’s see what the primary concerns are from both sides:
- Employers: Are often worried about the best way to write a non-solicitation agreement so that it covers all of their bases and is enforceable.
- Employees: Are often concerned about what signing a non-solicitation agreement means for their future career opportunities. Moreover, many wonder what legal rights and protections they have open to them after signing the agreement.
Whether you’re the contractor or the contractee, most people would agree that non-solicitation agreements tend to be lengthy and full of legal jargon.
That can make understanding their implications challenging, especially for those who aren’t so familiar with legal terms and concepts.
Looking to learn more?
Well, this page is for you.
We’ll provide guidance and information to help you answer the question, “What is a non-solicitation agreement?”, and learn how it affects businesses and workers alike.
You can use the information provided to decide what your non-solicitation agreement should entail.
What is a non-solicitation agreement?
This may sound like an obvious question, but read on, as there are clear distinctions between non-solicitation agreements and other types of legal contracts which you should know about.
Non-solicitation agreement definition
In short, a non-solicitation agreement prohibits employees from soliciting their coworkers (or their company’s clients) for a period of time after they have left the company.
You might also have heard it referred to as a ‘non-poaching agreement’.
These agreements are commonly used by employers to protect their trade secrets, customer relationships, and confidential information.
The restrictive covenant in common law
A non-solicitation agreement prevents you from acting in a certain way – which is why it falls under the umbrella term of ‘restrictive covenant’.
However, non-solicitation agreements are not the only type of restrictive covenant.
You should also be aware of:
- Non-compete agreements (NCAs): A contract prohibiting an employee from working for a competitor or starting a competing business.
- Non-disclosure agreements (NDAs): A contract outlining confidential information that cannot be disclosed to third parties without consent.
You must know that non-solicitation agreements are distinct legal entities from these other restrictive covenants.
Though they act similarly, they have been interpreted to different levels of stringency in an abundance of case law (and across many different jurisdictions).
That means that just because you’re prohibited from doing something under an NDA, for example, you might not be prohibited in the same way under a non-solicitation agreement.
Who does it apply to?
The parties involved in a non-solicitation agreement are the employer and employee, although these agreements can also impact clients and potential new employers.
For this reason, employers will often ask if you’re bound by any restrictive covenants during the job application process.
What does this mean if you sign one?
Legally speaking, a non-solicitation agreement is just like any other contract – an agreement between two parties that can be upheld in a court of law.
If you’re found to have broken this contract, you’d have to pay out legal fees (or worse, damages) to the other party.
However, there are several caveats, such as enforceability and scope, which we’ll cover in more detail later.
For now, let’s just cover the actions that a non-solicitation agreement prevents you from doing:
No direct solicitation
This involves reaching out directly to someone in the hope of trying to obtain something from them. For instance:
- Sending emails, making phone calls, or meeting with former clients or employees to offer them job opportunities or to solicit business for your new employer or business.
- Contacting clients or employees through social media or other online platforms to solicit commercial activity.
No indirect solicitation
This involves acting on prior knowledge to entice individuals into a commercial venture. For instance:
- Encouraging a third party, such as an ex-colleague or friend, to solicit clients or employees on your behalf.
- Using public information, such as a client’s LinkedIn profile, to indirectly solicit business from them.
- Distributing marketing materials or advertising to the public in a way that could indirectly target the clients of your former employer.
Generally speaking, if you’re unsure whether something is prohibited under non-solicit agreements, it’s best to err on the side of caution and avoid undertaking those activities.
Of course, this isn’t always realistic – and you may need to consult a legal expert to advise you on where you stand.
What does a non-solicitation agreement look like?
Forms of non-solicitation agreements
Non-solicitation agreements come in various shapes and sizes.
You have the obvious types, like written letters or secure e-documents, as well as less familiar forms, such as regular email correspondence between two parties.
Sometimes, a non-solicitation agreement can be made verbally, with the terms read aloud and agreed to in conversation.
Like any other contract, they are only valid and enforceable from the moment of agreement by both parties.
That means you can never be held accountable under a restrictive covenant that you didn’t agree to.
Likewise, you should know that non-solicitation agreements are voluntary.
Though they might be conditional for your employment, a company can’t just force you to sign one!
Content of non-solicitation agreements
The content of these agreements tends to follow a more predictable structure, encompassing the usual details such as:
- The scope of the restriction.
- Duration/timeframe of the contract.
- Geographic region that the restriction applies to.
They may also include details on what specific actions are considered solicitation or recruitment.
However, this may be a matter for a court to decide – especially if the terms are ‘unreasonable’.
Now that you have a better grasp on non-solicitation agreements and their content, the below template should make a lot more sense.
PandaDoc has a host of ready-made templates, including one for non-solicitation agreements.
When might you encounter a non-solicitation agreement?
There are several instances where you might be asked to sign a non-solicitation agreement. We’ve outlined the most common situations below.
As a condition of employment
Employers typically require new hires to sign a non-solicitation agreement as part of their employment contract.
When leaving a job
Non-solicitation agreements may be included in severance agreements or exit packages when leaving a company.
During the sale of a business
When selling a business, these agreements may be used to protect the new owner’s interests (such as preventing former owners from soliciting clients or customers).
Similar to employees, independent contractors often must sign restrictive contracts when working with a new client.
In mergers and acquisitions
They’re often included as a condition of a merger or acquisition to protect the interests of the new entity.
Business partners may use non-solicitation agreements to prevent one partner from soliciting the clients or customers of another partner if the partnership dissolves.
Importance of non-solicitation agreements
Non-solicitation agreements are a crucial instrument in the employment relationship.
For employers, these contracts help prevent former employees from stealing valuable clients or employees, which could harm the company’s bottom line.
It also helps to protect confidential information and trade secrets, ensuring that they remain in-house and do not fall into the hands of competitors.
Generally speaking, non-solicitation agreements tend to favor the employer, i.e., the individual or company that wrote the contract.
However, they can provide peace of mind to employees by demonstrating their commitment to the job, which brings security and career growth opportunities.
It’s also nice to have full transparency on what is and isn’t allowed, thus reducing unintentional violations of company policy.
Violation of non-solicitation agreements
How enforceable are non-solicitation agreements?
While enforceable in many cases, the specifics of the agreement and state laws can impact a non-solicitation agreement’s validity – which is why it’s so important to do your research before writing or signing one.
An excellent resource for employers to check out before writing a non-solicitation agreement is Seyfarth’s 50-state guide, which contains several examples where non-solicitation agreements differ across the USA.
Here are some of the standout case law examples from common law jurisdictions:
- California: Deems these agreements unenforceable, except in matters related to the protection of company trade secrets.
- North Dakota: Prohibits these agreements between companies and their customers (but not their employees).
- Canada: Accepts these agreements as valid using a three-step ‘reasonableness’ test. Further, it specifies that non-solicit and non-compete agreements are unenforceable against wrongfully-dismissed employees.
So, how do we decide if a non-solicitation meaning is reasonable?
A nice case to illustrate this definition is BDO Seidman v. Hirshberg (1999), in which the New York Court of Appeals concluded that these agreements are enforceable if they match four criteria:
- Reasonable in scope, i.e., how long it applies for, and the geographic area that it applies to.
- Necessary to protect the legitimate interests of an organization.
- Doesn’t place undue hardship on the contractee (employee).
- In the broad public interest.
Assuming an agreement is enforceable, the employer must still prove that an employee specifically recruited or solicited people in violation of the agreement – with the burden of proof resting on the claimant.
So, unless you’re out there with a megaphone shouting, “Join me at my new company!” most employers would take a relatively lenient approach in cases where no harm was caused.
What happens if you’re caught breaking a non-solicitation agreement?
Firstly, breach of contract is a legal concept in the scope of ‘civil’ law – that means no one’s going to prison for breaking a non-solicitation agreement.
However, it can still be a serious case, with the defendant liable for paying legal fees and possible damages if their ex-employer successfully sued them.
Courts can also apply injunctions, which could restrict your future career opportunities.
That said, in most cases where limited harm has been caused, a cease-and-desist order is much more likely as a first warning than a court summons would be.
How to get around non-solicitation agreements
Since we know non-solicitation agreements are often hard to enforce, it begs the question – in what other ways can an employee contest them?
Let’s explore some common challenges at each step of the process:
- Firstly, the contract must be valid, with clearly defined terms and mutual agreement between all parties, as well as capacity, consideration, and intention. Failure to meet these criteria means an employee could challenge on the basis of misrepresentation or duress during the formation of the contract.
- Non-solicit agreements must be enforceable according to local laws – which may involve a ‘reasonableness’ test on several grounds.
- Finally, just because a non-solicitation agreement is enforceable in your jurisdiction, it doesn’t mean that it can’t be the subject of a legal challenge. You could have the right to appeal a contentious decision and fight your case in a higher court.
Protect your company’s revenue with non-solicitation agreements
Non-solicitation agreements are a vital tool for businesses to protect their interests and ensure that ex-employees don’t take over their operation.
As for those who have been asked to sign one, you shouldn’t fret too much – well, maybe if you’re planning a commercial venture in the same sector and location.
Remember that the law always has your back and will strike down unreasonable contracts.
One thing we can all agree on is that signing contracts should be simple and stress-free.
Looking to create custom non-solicitation agreements?
You’ve come to the right place – the process couldn’t be easier with PandaDoc’s contract management solution.
With real-time collaboration, you can add a non-solicitation clause to any contract and have your employee e-sign it in minutes.
Easily create and store any contracts with new employees and get them up and running much faster.
Check out our non-solicitation agreement template to get started!