Overview: One type of employment contract is the nonsolicitation agreement. A nonsolicitation agreement or clause typically prohibits an employee from directly or indirectly asking the employer's customers and clients to leave the current employer and join the departing employee in a new business or venture.
Nonsolicitation agreements are looked upon more favorably than noncompete agreements. However, like noncompete agreements the degree to which they are enforced varies per state. Unlike a noncompete agreement, the geographic area affected by a nonsolicitation or antisales covenant is typically limited to the area in which the customers of the former employer are located and the restriction - even within that area - applies only to those customers. Further, the time period for the nonsolicitation limitation must be reasonable and employers need to carefully draft language to ensure they are not overly broad. Otherwise, the nonsolicitation agreement may be unenforceable providing employer's clients or customers with the opportunity to join the departing employee and leading to reduced revenue should the customer or client decide to leave.
Trends: One key issue that courts focus on when confronted with a challenge to a nonsolicitation agreement is whether the agreement protects the employer's goodwill in its industry as well as the goodwill the employer acquired through its own resources. Where an employer spends a significant amount of time and money cultivating and retaining its client or customer base, it has a stronger argument defending a nonsolicitation agreement. Courts are less likely to enforce an agreement if the nonsolicitation terms extend beyond the customers or clients that the employee had actual interaction with.
Author: Melissa A. Silver, JD, Legal Editor
Updated to reflect IRS final regulations defining 'spouse' for federal tax and benefits purposes.
Updated to reflect state Supreme Court ruling prohibiting courts from modifying the terms of noncompete agreements.
Updated to include requirements regarding physician restrictive covenants, effective July 12, 2016.
Updated to reflect unlawful practice of prohibiting employees from discussing wages, effective June 30, 2016 and forthcoming discrimination protections based on family responsibilities and reproduction health decisions, during hiring.
Updated to reflect the reduced enforceable term of a noncompetition agreement, effective January 1, 2016.
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HR guidance on the use of nonsolicitation agreements to prevent employees from stealing an employer's customers or clients.