When you bring someone into your company as an employee or contractor, they may have access to vital trade secret information like client files and lead records. A non-solicitation agreement is an agreement, generally as a portion of a larger employment contract, in which the employee agrees not to solicit your clients and customers after leaving your employment. Some also include an agreement that the employee will not try to hire other employees from your business when they leave.
Non-solicitation agreements, while often presented as part of the initial contracts signed upon engagement, they can be presented at any point during the employment such as when the employee is being offered a severance package. Since a binding contract requires some consideration from the business, it’s easiest to offer this consideration and have the forms signed when the consideration is the offer of the job and associated pay or the severance package.
Sales teams, in particular, should sign non-solicitation agreements because they have both access to customer lists and have built relationships with those customers over time. Further, these individuals know your businesses pricing structure and would have an unfair advantage in competing with you over price for those customers.
For this non-solicitation contract to be enforceable, there must be a valid business reason, such as to protect customer lists or trade secrets or to prevent a mass exodus of valuable employees. Further, the information must be worth protecting, so it must go beyond a simple lead list that was purchased off the Internet.
California and Non-Solicitation
California’s Supreme Court has held that, as a matter of the state’s public policy in favor of competition on the open market, coupled with employee mobility, most non-solicitation agreements are void as drafted. However, a carefully-drafted non-solicitation provision in an agreement may be enforceable or at least serve as a deterrent to an employee soliciting clients and customers of the business as long as the business understands and acknowledges that it is not enforceable within the state of California. Outside of California, non-solicitation agreements are enforced as long as the employee can continue to earn a living.
It’s also important for businesses to note that this non-solicitation agreement doesn’t prevent customers from voluntarily leaving and going to a competing business, even one opened by a previous employee. All a non-solicitation agreement does is stop the previous employee from improperly soliciting your customers or using your trade secrets to gain an unfair advantage.
Businesses looking for help drafting employment contracts and non-solicitation agreements should call the attorneys at Chase Law Group, P.C. at (310) 545-7700 to schedule a consultation today. We understand a business’s need to protect their valuable information while still complying with applicable laws and can help you decide whether a non-solicitation agreement, or other policies to protect trade secrets, would be right for you.