Non-solicitation clauses are used to prevent employees from taking clients, customers or members of staff with them when they leave an organisation and engaging in direct competition with their old employer.
These clauses are a type of restrictive covenant and can appear in an employment contract or a settlement agreement. A non-compete clause, which seeks to prevent a former employee from working for a competitor company, is another type of restrictive covenant.
What does a non-solicitation clause do?
Broadly speaking, a non-solicitation clause within an employment contract will seek to protect the employer by:
- preventing the outgoing employee from ‘soliciting’ a customer, client or supplier with whom they had direct contact within a certain period of time up until the end of their departure from the company;
- preventing the employee from recruiting or ‘poaching’ its existing staff; and
- defining the length of time for which the restriction applies.
Following an employee’s termination of contract, employers should be able to protect their interests in terms of confidentiality and intellectual property, provided the clause is well-drafted; too wide in scope, and it may not be deemed enforceable.
What is the difference between a non-solicitation clause and a non-compete clause?
A non-compete clauses seek to protect employers by:
- preventing the outgoing employee from working for an employer in direct competition with it, or preventing the employee from setting up a directly competitive business themselves; and
- preventing the employee competing with it within a certain geographical distance.
Therefore, a non-solicitation clause will not prevent an employee from leaving their job and setting up in business on their own account, in the same sector as you. The non-solicitation clause would, however, prevent the employee from being able to entice their former clients or team members away from you.
Accordingly, most employment contracts or settlement agreements contain several restrictive covenants, in order that all of the interests of an employer are protected.
When are non-solicitation clauses used?
Non-solicitation clauses can be included in employment contracts, contractor agreements and settlement agreements.
They are used when a company or business wants to protect its legitimate business interests in the event the employee leaves the organisation. This is because, in their new role, the outgoing employee or contractor may try to entice former clients, customers or staff members away from the original employer, to become their client or work for them at a new company.
Alternatively, employers may seek to prevent a former employee from persuading a supplier to move their business to a new company.
Non-solicitation clauses are common in the pharmaceutical, IT, professional services and financial sectors where the departure of usually highly skilled and senior employees with significant client bases can pose a threat to the former employer.
Generally, the advice is that a non-solicitation clause should be included in the employment contract from the start of the employee’s time with the employer.
Alternatively, employers can take the opportunity to re-draft the employment contracts of employees who secure promotion and greater direct access to customers or clients. This helps to ensure that the non-compete clause is relevant to the role of the employee and will not fail for being too widely drawn and ambiguous.
However, employers should exercise caution when seeking to vary the terms of an employment contract.
This is especially so if they have over two years of continuous employment with the employer as they will qualify for protection against unfair dismissal. This makes it harder for the employer to force the employee to accept the new clauses by dismissing them and re-engaging them under a new contract.
In this situation, the Employment Tribunal would consider whether the employer had been acting reasonably in treating the employee’s refusal to accept the new terms as a reason to dismiss them.
A non-solicitation clause can also be inserted into a settlement agreement as part of the negotiations when an employee leaves the organisation. It may be that such a clause will be a key requirement for the employer if there was no such provision in the employment contract, or if you think that you have breached the employment contract, rendering it unenforceable.
The inclusion of the non-solicitation clause may act as a valuable negotiation point with the employee over the terms of their departure. For example, your employee’s intentions after they have left your employment will be highly relevant.
What are the legal issues of using non-solicitation clauses?
Issues can arise when an employer seeks to rely on a non-solicitation clause.
Non-solicitation clauses are only enforceable where they protect legitimate business interests and are drawn as widely as is reasonable. Therefore, the mere inclusion of a non-solicitation clause in a contract of employment does not mean it is enforceable.
Nevertheless, there are some guidelines for employers to follow which should assist in drafting non-solicitation clauses that are enforceable, and therefore effective and of use to the employer when required.
First, the non-solicitation clause should not be too broad in its scope, or ‘overreach’ itself.
The non-solicitation clause should refer to the employee specifically enticing or canvassing clients or members of staff, rather than a general approach to all customers in a particular field.
The courts have declined to enforce non-solicitation clauses where the employer has tried to prevent dealings with any customer of the company after they left, regardless of whether or not they had actually dealt with that customer while they worked for the company. This means restrictions should usually be limited to clients and customers with whom the ex-employee had a direct relationship on behalf of the business.
Second, if your employee brought customers or clients with them when they joined your organisation, then it will be more difficult to prevent the employee taking those customers and clients ‘with them’ when they leave.
Third, the duration of the clause’s restrictions is also highly relevant as to whether it will be enforced by the court. Generally, the court will look at what timescale the employer needs to protect its business. Six months is generally accepted to be a reasonable amount of time.
It is possible for a non-solicitation clause to legitimately last for as long as twelve months, but this will usually only be where the employee in question is senior within the organisation and the key contact with certain clients or customers.
Fourth, businesses that include a non-solicitation clause in a contractor’s agreement should be wary of inadvertently undermining the contractor’s employment status.
Most businesses hire people as contractors for a reason, and do not want them to become ‘employees’. One of the legal tests for employment status is the degree of control exerted by the hirer. The inclusion of a non-solicitation clause could meet the requisite degree of control for the contractor or a court to decide that they are in fact an employee.
Fifth, the clause should refer to the customers or clients with whom the employee had contact with for a particular time period leading up to their departure. This can be up to twelve months. In limited situations, it may be possible to extend this to cover all customers of whom the employee was aware. For example, where neither the customers nor the business want their client list to be public knowledge. However, specific legal advice should be sought in this instance.
Finally, employers should explain to their employees how they should manage their departure, scripting emails where appropriate to ensure that there are no misunderstandings. Of course, it is good customer management for an outgoing employee to inform their customers that they are leaving. If there is a non-solicitation clause in place, they should not be allowed to pass on their contact information and details of their new role.
What if the individual breaches a non-solicitation clause?
If your former employee breaches a non-solicitation clause, it will be important to seek legal advice before taking action.
There is no prescriptive steps to follow, and case law shows each matter will be considered on its own facts and circumstances, such as the nature of the employee’s breach, whether any other restrictive covenants or contractual terms have been breached, and the degree of loss to the organisation as a result of their breach.
If legal action is the only recourse, you could seek damages and an injunction to prevent the employee from continuing to breach the clause.
Non-solicitation clauses FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Anne Morris is the founder and Managing Director of DavidsonMorris. A highly experienced lawyer, she is recognised by Chambers & Partners and the Legal 500 UK as a trusted adviser to multinationals, large corporates and SMEs, delivering strategic immigration and global mobility advice. Anne is also an active commentator on UK immigration and HR matters.
