“Forfeiture-for-competition” encompasses another key concept of consideration for employers and employees during the process of hiring and boarding. Employers should understand that through the provision of forfeiture-for-competition, employees are given a choice – retain employment benefits by staying with the employer or forfeit a prospective benefit by competing with the employer. Another critical thing to note is that as long as the employer can demonstrate that the employee was discharged for an identifiable cause or that the employer was willing to employ the employee who agreed not to compete, the provision is enforced by courts, irrespective of its reasonableness.
In this blog post, we have provided crucial information concerning the key considerations for employers when drafting & enforcing non-solicitation clauses.
Considerations for Employers when Drafting & Enforcing Non-solicitation Clauses
We have, in our series called “Key Legal and Drafting Issues for Non-solicitation Covenants/Agreements,” dealt with the issue of non-solicitation, which is a crucial pillar of restrictive covenants. In this 5-part series, we hammered on five key considerations for every employer when drafting client/customer non-solicitation agreements. These considerations, as discussed under individual blogs, included (1) defining clients that will be specifically covered by the non-solicitation agreement and determining the scope of prohibited customer solicitation, (2) including reasonable geographic and time limits, (3) defining confidential information, (4) defining the protectable interest with regards to the employer’s confidential information and client/customer goodwill, and (5) determining if a geographic restriction can be eliminated.
In agreement with the information we provided under the series, a key concern of employment is that by recruiting from the former employer’s ranks and/or soliciting the former employer’s clients/customers, former employees may drain their former employer’s staff or customer/client base. To prevent this from happening, the law permits employers to draft and enforce employee non-solicitation agreements and clauses and client/customer non-solicitation agreements and clauses. Like non-competes,
In the blog post Non-solicitation Agreements: Key Legal & Drafting Issues, Part IV, we hammered on why employers should avoid ambiguous and/or overreaching non-solicitation agreements and mentioned that usually, an employee non-solicitation agreement might be rendered unenforceable by a court when terms such as “encourage” and “influence” are used as a way of expanding the reach beyond employee solicitation since such usage is considered too broad. It goes without saying that, just as when drafting non-competes discussed in Part XXIII of this series, employers should avoid ambiguity or overreaching when drafting and structuring non-solicitation agreements.
Another thing is that a reasonable period on the non-solicit restriction related to a fundamental business justification should be included in a non-solicitation agreement/clause. In another blog post, Non-solicitation Agreements: Key Legal & Drafting Issue, Part III, we asserted that the limit on the time of an employee non-solicitation agreement should depend on a valid business justification, including the time needed to recruit additional qualified individuals or the training time required for new employees. Employers often fall into the temptation of making the time limit for non-solicitation clauses and non-compete clauses the same. However, since a former employee is not prevented from earning a living by non-solicits, it can be argued that the time limit for non-solicits could be longer than that of non-competes.
Additionally, employers should also, when structuring employee non-solicitation clauses, factor in whether the former employee would be prohibited not only from contacting the former employer’s employees but also from hiring them altogether. From a legal perspective, a non-solicit prohibiting a former employee from contacting the former employer’s employees is narrower but has a higher likelihood of being enforced by a court.
Last but not least, employers may consider including clients and/or investors as part of a broad definition of customers. Ideally, any customer who was a customer, either throughout or even at a single point in time, within several months after separation of employment with the former employee.
In Part XXVII of this series, we will, in our blog post titled “Including Non-disparagement Provisions in Restrictive Covenants,” hammer on the importance of including non-disparagement provisions and clauses when drafting and structuring restrictive covenants at the point of hiring and onboarding employees.
As usual, stay tuned for more legal guidance, training, and education. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always Rising Above the Bar,
Isaac T.,
Legal Writer, Author, and Publisher.