Non-Solicitation Covenants
Navigating Non-Solicitation Covenants
We routinely draft, enforce, and attack both non-solicitation and non-competition covenants.
If properly drafted, a non-solicitation covenant prohibits former employees, owners, and contractors from stripping away customers, work, and employees from your business. If properly drafted—and vigorously enforced—non-solicitation covenants provide companies with immense protection and leverage; they can be worth millions of dollars if done right.
Non-solicitation covenants are not the same as non-competition covenants. In some ways non-solicitation covenants are narrower—and in some ways they are broader—than non-competition covenants.
Most critically, a non-solicitation covenant can apply to, and protect, your entire customer list.
On the other hand, a non-competition covenant is almost always limited geographically. For example, a common non-competition covenant is limited by 50 or 100 miles. If so, this means that a former employee or owner may go after customers not located within that 50- or 100-mile radius.
In this sense, non-solicitation covenants offer greater protection.
The Surge of Non-Solicitation Covenants in Employment Agreements
We have recognized a trend over the past decade that appears to be accelerating: supplementing or altogether replacing non-competition covenants with non-solicitation covenants.
There are multiple reasons for this development:
- People generally feel that non-solicitation covenants are “fairer” in that they prohibit competition only for the company’s existing customers. People are thus more inclined to sign them. This helps get deals done, whether a hire or a partnership.
- Most jurisdictions treat non-solicitation provisions more favorably than non-competition covenants. Indeed, in some jurisdictions, courts either refuse to enforce non-competition covenants or severely narrow them. For example, Texas, California, Wisconsin, Oklahoma, and North Dakota all either ban or severely restrict non-competition covenants. Other states require specific limitations in the covenant language. Unfortunately, many companies do not realize this jurisdictional nuance until they are devastated in court.
- President Biden’s administration—specifically the National Labor Relations Board (NLRB)—asserts that most non-competition covenants are illegal and unenforceable. In many ways, the NLRB’s has adopted the minority—but strengthening—position among U.S. jurisdictions. Indeed, whether later presidential administrations will stick to this current policy is far from certain. However, the very existence of this uncertainty casts great instability in this area of law. Companies have thus tended to rely more heavily on non-solicitation covenants to protect their interests.
- We know of fewer contractual provisions that cause more problems for companies than non-solicitation provisions. Companies must ensure that their provisions are correctly-worded.
- We also strongly encourage our clients to avoid cookie-cutter approaches to these covenants: companies should tailor non-solicitation covenants not only to their jurisdictions but also to their particular lines of business and clientele.
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