Businesses use non-solicitation agreements to protect customer relationships. An employee who signs a non-solicitation agreement cannot solicit certain customers for his or her benefit, or the benefit of a competing business, after leaving the company.
Non-solicitation agreements must be carefully drafted in order to be enforceable. If the non-solicitation clause is too broad or does not protect legitimate business interests, a court may deem it unenforceable.
Characteristics of an Enforceable Non-Solicitation Agreement
A legitimate business reason must exist for requiring an employee to sign a non-solicit agreement. This is typically for protection of actual customer relationships. Businesses spend considerable time, money, and effort to develop customer relationships. Non-solicitation clauses prevent former employees from taking relationships built on the businesses time and resources and using them for their own benefit, either at a new employer or to start their own business.
However, there must a legitimate business interest in the customer relationships. If the employer can show that it expended substantial resources to developer the relationships, they will likely be considered a legitimate business interest. However, if a customer relationship was developed by the employee prior to coming to the new employer, then the employer is unlikely to be able to protect that relationship.
A non-solicit clause also does not prevent a customer from leaving on their own. It only prevents future solicitation of the customer. If a customer follows an employee who leaves to a competitor on their own, without being solicited, that typically does not violate the restriction. Former employees are still permitted to earn a living at a competitor, they just cannot solicit the customers they previously worked with..
If a non-solicit clause is overly broad, a court can find it unenforceable. In Orca Communications Unlimited, LLC v. Noder, the Arizona Court of Appeals found several restrictive covenants the employer required the employee sign unenforceable, including a non-solicitation clause.
The non-solicitation clause covered not only current customers, but also previous customers and potential customers. The court determined that the employer had no business interest in previous or potential customers, making the non-solicitation agreement invalid. The Arizona Supreme Court later depublished portions of the Court of Appeals opinion, but not the portion dealing with restrictive covenants.
To create a non-solicitation agreement that is enforceable, consult with an experienced Arizona business lawyer. The unique nature of your business will determine what business interests you can legitimately protect with a non-solicit agreement.
Chernoff Law Firm handles complex employment disputes including trade secret misappropriation and violations of other restrictive covenants. Call our office in Scottsdale at 480-719-7307 to discuss your employment dispute with one of our experienced business attorneys.