Non-Solicitation of Customers & Employees

Similar to any other investment or hard asset, your customer base and employees need to be protected. After you have spent considerable time, effort and expense in training and cultivating core employees to operate your business, these individuals become assets. Your customer base is always an asset and should always be protected. More often than not, one of your employees or contractors may decide he/she can operate your business better than you can. In fact, this is more the rule than the exception if you are in business for long enough period of time. Of course, sometimes these individuals may be right. But, usually they find out the hard way that it’s actually difficult to operate the business and requires extraordinary effort. In many cases, they learn this lesson only after convincing some of your key employees and clients to sink the ship with them.

A non-solicitation clause is another restrictive covenant you should include in any of your employment or independent service, consultation or vendor agreements. There are two basic kinds of non-solicitation clauses: non-solicitation of employees and non-solicitation of customers of the business. Non-solicitation clauses prevent your employees or contractors from attempting to divert your customers and/or other key employees away from your business. The non-solicitation of employees is obviously straightforward-it prevents your employee or independent contractor from attempting to divert your employees away from your business. Depending upon the skill and value of your employees, this can be an effective measure in preventing key personnel from leaving.

A non-solicitation of customers can be used to limit the employee’s ability to solicit and/or engage in business with your active customers, or even your prospects. While you cannot force your customers to stay with you, you can prevent your employees from offering another option to them. Thus, it is worth using and then carefully defining the scope, duration and breadth of such a cause. A provision preventing the solicitation of customers is more restrictive since, in essence, it actually operates as a non-compete restriction. It can and often does interfere with a departing employee’s ability to obtain another job.

TIP! Any restrictive promise (covenant) must ultimately be deemed to be “reasonable” by the courts, and this includes any non-solicitation provision. Generally, offering employment or the pledge of payment to a contractor should provide adequate consideration to that individual for the courts to uphold these types of covenants. Carefully define what is considered to be solicitation of your customers and this definition should be all-inclusive. It should include and define active prospects of your business so your employees or contractors cannot steal the prospects. You should make sure that you restrict the employee or contractor from soliciting customers through any forms of social media also. Otherwise, this may not be entirely clear if push comes to shove.