Non-Solicitation Agreement: A General Guide

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A non-solicitation agreement protects a business's confidential information and competitive edge, shielding vital resources from external threats. Organizations invest considerable time and funds in this competitive business domain to create a dedicated client base and develop powerful associations with clients and employees. Therefore, businesses usually use legal mediums such as non-solicitation agreements to safeguard these valuable assets and maintain a competitive advantage. A non-solicitation agreement is a statutory contract between an organization and an employee or supplier designed to regulate the unlawful solicitation of employees or clients by the parties concerned.

Is your company a strong force in the market?

When you’re successful, competitors will attempt to learn what makes your company outperform them at all costs. It’s for this reason that having employees sign a non-solicitation agreement is essential to protecting your share of the market.

Ensure that terminated or newly resigned employees don’t poach your customers or key employees for your competition. Here’s everything you need to know about non-solicitation agreements.

What is a Non-Solicitation Agreement?

A non-solicitation agreement, also known as non-compete agreements and non-disclosure agreements, is an employment contract where employees agree to not solicit customers for the benefit of a competitor upon resignation or termination. They typically limit where a former employee may work within a specific geographic region. Your non-solicitation agreements must be reasonable for them to remain enforceable.

Essential Elements of a Non-Solicitation Agreement

Maintaining and safeguarding valuable associations with clients, vendors, and employees is essential in the modern business world. Hence, many companies execute a legal document known as non-solicitation agreements to protect these associations and control unjust competition.

A non-solicitation agreement, generally known as an anti-solicitation agreement, is a statutory contract generally used in organizations to protect a business's legal interests and confidential data by controlling employees, contractors, or business associates from summoning the organization's clients, employees, or suppliers after their association with the company has completed. These contracts are vital in protecting a company's competitive edge and goodwill. A well-drafted non-solicitation agreement generally comprises the following essential elements:

• Parties Concerned: The agreement identifies the parties involved, the company seeking protection, and the individual(s) or institutions bound by the agreement.
• Extent: The agreement should explicitly state the scope of the non-solicitation restrictions. It could comprise employees, clients, suppliers, business associates, or any other appropriate parties with whom the individual has had a direct connection or impact during their employment or association with the company.
• Duration: Non-solicitation agreements are not indefinite; they have a limited duration. The timeframe specified in the agreement should be reasonable and consider the industry, the nature of relationships, and the time required to replace key employees or customers.
• Geographic Limitations: In some cases, non-solicitation agreements may include geographic limitations, restricting the individual from soliciting the protected parties within a specific region or territory.
• Definition of Solicitation: The agreement should precisely define what comprises "solicitation." It can include direct contact, communication through intermediaries, or even social media interactions.
• Consideration: Determine what consideration (payment or benefit) the restricting party obtains in exchange for consenting to the non-solicitation regulations. It could be the continuation of a business association, access to proprietary details, or some other useful consideration.
• Exceptions: Certain exceptions can be incorporated into the agreement, typically in cases where the solicitation is initiated by the customer or client themselves or through general advertisements not targeted at the protected parties.
• Remedies for Infringement: The non-solicitation contract should summarize the repercussions of a violation. Moreover, prevalent remedies comprise injunctive relief (a tribunal's mandate to stop the forbidden activity), monetary fines, or even liquidated injuries. These provisions should be prepared thoughtfully to ensure they are lawfully enforceable.
• Severability: Incorporate a severability provision that states that if one part of the agreement is found to be unenforceable, the rest of the contract remains in effect.
• Signatures: Both parties should execute and sign the agreement to define their consent and understand the important provisions.

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When are Non-Solicitation Agreements Used?

Non-solicitation agreements are used when you want to prevent former company stakeholders from taking your competitive advantages over to a competitor. Typically, these provisions begin as soon as a non-solicitation agreement trigger occurs. Triggering events are in the form of a resignation, termination, or contract end date.

Examples

Non-solicitations are used across a vast number of employment situations. You generally use them if you offer employment to and hire employees. Understanding when to use them can be helpful as well.

Examples of when to use non-solicitation agreements include:

• Example 1 . Preventing legitimate business interest from soliciting employees
• Example 2 . Limiting how much employees can share about your company
• Example 3 . Prohibiting a former employee from soliciting your customers
• Example 4 . Protecting company information from independent contractors

As you can see, non-solicitation clauses are flexible and offer multiple applications. Therefore, you should consider which types of common documents have non-solicitation clauses. Doing so can help you avoid contractual overlap or conflict.

Read more about non-solicitation agreements here.

Common Documents with Non-Solicitation Clauses

Non-solicitation agreements allow for nuanced provisions. This level of flexibility and control will enable you to create the perfect agreement for the intended situation without being overly burdensome in terms of geographic restrictions and time. However, you may use the term non-solicitation agreement to refer to a broader set of contracts that prevent the soliciting of resources.

Common documents with non-solicitation clauses include:

• Document 1. Non-Compete Agreements: Non-compete agreements prevent former employees from working for competitors. This type of agreement prevents them from taking your efficiencies and trade secrets to another organization. Not mitigating this leak of information over time can result in your competitors overtaking your market position.
• Document 2. Non-Solicitation Agreements: You can use non-solicitation agreements as a standalone document or in combination with other unrestrictive and restrictive clauses. You should also take note that states may prohibit the use of non-solicitation agreements under state labor laws.
• Document 3. Non-Disclosure Agreements: Non-disclosure agreements prevent employees from disclosing any internal company information to other businesses, competitors, vendors, and customers. This practice is an intelligent approach since competitors may use your weaknesses to their advantage.
• Document 4. Non-Disparagement Agreement: Non-disparagement agreements explicitly prohibit former stakeholders, such as employees and vendors, from making negative public statements about your company. Harmful messages reduce the chances of a negative public image and may discourage libelous or slanderous comments from being made in the first place.
• Document 5. Confidentiality Agreements: Confidentiality agreements are similar to non-disclosure agreements. The only difference is that they allow you to impose the restriction of sharing company information for a more extended period following company employment.
• Document 6. Service Contracts: Sometimes employees or contractors will go on-site during services provided by a service provider. Service contracts will often protect against the customer poaching the employees with a non-solicitation clause. If the customer did poach the employee, then the service provider would risk losing the business and profit margin of providing the service.

Who Signs a Non-Solicitation Agreement?

The employee or independent contractor signs a non-solicitation agreement. Employers will draft their contracts with employment lawyers and present them to employees for signing. Employees are permitted to review non-solicitation and employment agreements with their legal counsel also.

Non-Solicitation Agreement Enforceability

In general, non-solicitation agreements are enforceable. However, they must meet specific guidelines for a court of law to uphold them. An employer cannot impose unnecessary restrictions upon the employee when they leave their positions.

Elements of reasonableness in a non-solicitation agreement include:

• For a valid business reason
• Needing to protect trade secrets
• Not using burdensome geographic restrictions

Some states generally prohibit the use of non-solicitation agreements. For example, it’s illegal to ask employees to sign a non-solicitation agreement in California. California employees are not subject to termination if they refuse to sign one or try to figure out how to get around non-solicitation agreements.

Key Terms for Non-Solicitation Agreements

For your non-solicitation agreement to perform as intended, you must incorporate key terms and provisions. Leaving out a single section can result in a document that does not protect your legal rights. Ensure that you familiarize yourself with the key terms in a non-solicitation agreement.

Key terms for non-solicitation agreements include:

• Contract Introduction: Include party names and addresses and acknowledge the agreement on a specific date.
• Definitions: Define critical terms that you will use throughout your contract. This section makes your document easier to understand and may protect your legal rights.
• Exclusions: Set the guidelines surrounding what information is prohibited. You should also outline the geographic restrictions.
• Time Periods: Non-solicitation agreements generally end with a specific period.
• Severability: Ensure that your non-solicitation agreement remains intact if one or more provisions are found to be unenforceable.

Your non-solicitation agreements may need to contain terms that are specialized for your industry or geographic location. You must also consider the legal implications and considerations associated with employees signing them. Ensure that you communicate these rules and guidelines with your HR department to ensure compliance and uniformity.

Final Thoughts on Non-Solicitation Agreements

A non-solicitation agreement plays a fundamental part in safeguarding a business's confidentiality, interests, and competitive advantage. Moreover, when drafted thoughtfully considering relevant legal provisions, these agreements can preserve valuable associations with customers, clients, and employees. However, organizations and employees should approach these agreements with diligence and seek legal advice to ensure they comply with applicable regulations.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.