Non-solicitation agreements are common in many businesses. Employers often use them to protect customer relationships, employees, and confidential business information after someone leaves the company.
Even though these agreements are widely used, many business owners and employees assume they are always enforceable. That is not the case. Whether a non-solicitation agreement will hold up depends on several factors, including how it is written and the applicable state laws.
Understanding what makes a non-solicitation agreement enforceable can help businesses reduce legal risk and protect their interests.
What Is a Non-Solicitation Agreement?
A non-solicitation agreement is a contract that limits a person’s ability to solicit certain customers, clients, employees, or business relationships after leaving a company.
Unlike a non-compete agreement, a non-solicitation agreement does not usually prevent someone from working for a competitor or starting a competing business. Instead, it focuses on preventing the former employee or business partner from actively pursuing relationships that belong to the company.
Businesses often include these provisions in employment agreements, partnership agreements, and contracts with independent contractors.
What Makes a Non-Solicitation Agreement Enforceable?
Courts generally look at whether the agreement is reasonable under the circumstances. An agreement that goes too far may be difficult to enforce.
The restrictions should protect a legitimate business interest rather than simply limit competition. For example, protecting customer relationships, confidential information, or an established workforce may support a non-solicitation provision.
The agreement should also have reasonable limits. Courts may review the length of the restriction, the people or customers covered by the agreement, and whether the restrictions are broader than necessary.
State law plays a significant role as well. Some states place strict limits on non-solicitation agreements, while others allow broader protections for employers.
Does Every State Treat These Agreements the Same?
No. Employment laws vary from state to state, and those differences can affect whether a non-solicitation agreement will be enforced.
Some states have adopted laws that restrict certain employment agreements or prohibit them in specific situations. Other states continue to enforce properly drafted agreements that reasonably protect business interests.
Businesses that operate in multiple states should avoid using the same agreement for every employee without reviewing the applicable laws. A contract that works well in one state may create problems in another.
What Can Make an Agreement Difficult to Enforce?
One common problem is using language that is too broad. If an agreement attempts to restrict every customer or employee without a reasonable business purpose, a court may decide that the restrictions go too far.
Another issue involves vague wording. The agreement should clearly explain what activities are prohibited and how long the restrictions remain in effect.
Poor drafting can also create problems. Generic contract templates may fail to address the company’s actual business relationships or comply with current state law.
Finally, employers should make sure employees receive appropriate consideration. In contract law, consideration means each party receives something of value in exchange for the agreement. Depending on the circumstances and applicable law, continued employment alone may not always satisfy that requirement.
How Can Businesses Improve Their Agreements?
A well-written agreement should match the company’s business needs instead of relying on broad restrictions that apply to everyone.
The agreement should clearly identify the business interests being protected, define the prohibited conduct, and include reasonable time limits. It should also work alongside other agreements that protect confidential information and trade secrets when appropriate.
Employers should review these agreements from time to time. Business operations change, employment laws change, and contracts that were drafted years ago may no longer provide the protection the company expects.
When Should You Seek Legal Advice?
Businesses should seek legal guidance before asking employees or business partners to sign a non-solicitation agreement. A legal review can help determine whether the agreement complies with current law and whether its restrictions are likely to be enforceable.
Legal counsel can also assist when a former employee is believed to have violated an existing agreement. Early legal guidance allows businesses to evaluate their options before taking further action.
A carefully drafted agreement provides stronger protection than a generic template. Reviewing these contracts before problems arise can help reduce disputes and protect valuable business relationships.
Need Help Reviewing Your Business Agreements?
General Counsel Consulting Services helps businesses prepare, review, and update employment agreements, non-solicitation agreements, and other important contracts. Whether you are protecting customer relationships or responding to a contract dispute, experienced legal guidance can help you make informed decisions while reducing unnecessary risk. Contact us today to discuss your business agreements.