Why Your Business Should Have a Non-solicitation Clause For Employees

by Corey Philip //  January 27, 2023

Non-solicitation clauses go a long way in protecting the longevity and success of your business. Implementing a non-solicitation clause in your employment agreement with your employees is essential in protecting your ability to retain existing clients and employees.

Your business should have a non-solicitation clause for employees to prevent employees from soliciting your clients and suppliers. Additionally, a non-solicitation clause is necessary to prohibit an employee from leaving, starting a new business, and recruiting your employees for that new business.

Failure to implement a non-solicitation clause for employees can result in your employee becoming your competitor and your client becoming a client of your old employees' new company. Let's explore the importance of having a non-solicitation clause for your employees as we go on.

The Importance of Non-Solicitation Clause for Your Employees

The retention of your business's clients, suppliers, and employees will directly impact your ability to grow your company. It is necessary to have a non-solicitation clause for your employees to prevent them from leaving your company and then approaching other employees to join them at the new company.

Given that you invest a lot of time and money in training your employees, it is natural that you would want to retain the staff you have invested. Failure to implement non-solicitation clauses could result in you losing them to another company and having to train new staff from the beginning again.

Additionally, it is necessary to have a non-solicitation clause to prevent previous employees from joining a new company and poaching suppliers and clients from your business. Having reliable suppliers for your business is crucial to your business's ability to operate efficiently. Losing your supplier can drastically affect your productivity and income-producing ability.

Similarly, your business will suffer if you lose your clients to your previous employees' new company. Therefore, you should have a non-solicitation clause that prevents employees from poaching your business's valuable assets in the form of your employees, suppliers, and clients.

3 Key Considerations to Include in a Non-Solicitation Clause

When implementing a non-solicitation clause, ensure all your bases are covered so that there are no loopholes for employees to take advantage of when they leave your business.

Here are a few essential things your non-solicitation clause should address.

Provide a Definition of What Amounts to Solicitation

In the phraseology of your non-solicitation clause, it is vital to define the solicitation of employees, suppliers, and clients. Defining the interpretation of "solicitation" is essential as it will clearly define what actions would amount to a solicitation, clearly indicating what actions would amount to a breach of the agreement.

This definition is beneficial in the long run because then, to determine a breach of the non-solicitation clause, one would merely have to contrast any employee behavior with the definition of solicitation stated in the agreement.

Distinguish between Direct and Indirect Solicitation

It is imperative to distinguish between direct and indirect solicitation when including a non-solicitation clause in your employee agreement. Direct solicitation can be defined as an employee directly approaching another employee and encouraging them to interview for a job at a new company.

Direct solicitation can also include an ex-employee contacting a client to inform them they have started a position at a different company and suggesting the client bring their business to the new company.

On the other hand, indirect solicitation can be a bit more ambiguous. Indirect solicitation typically includes situations like an ex-employee advising a colleague to contact one of their former clients to persuade them to bring their business to the new company. Indirect solicitation can also include an ex-employee advertising the new business in a way that they know they'll get the attention of a former client.

Solicitation in these indirect instances can be tricky to prevent and hard to prove. Therefore, you should try your best to word your non-solicitation clause effectively to cover as many scenarios as possible. However, you should be cautious not to impair a previous employee's earning capacity to the extent that a court would find unreasonable.

Ideally, your agreement would indefinitely cover direct and indirect solicitation, so your business is always protected. However, courts are reluctant to significantly limit individuals earning capacity as they want to promote economic efficiency, which requires competition in the marketplace.

Given that courts will most likely uphold direct solicitation clauses but are less likely to give effect to indirect solicitation clauses, it is essential for you to very clearly define your direct solicitation clauses so that there is no ambiguity that could lead to a court interpreting a clause to be an indirect solicitation.

State a Reasonable Time for the Clause's Operation

Expecting employees, clients, and suppliers to remain with the same company perpetually is unrealistic. Therefore, you will not be able to include a non-solicitation clause that exists in perpetuity and must specify a specific period in which the employee may not solicit employees, clients, and suppliers.

It is imperative that the time period chosen is reasonable. Failure to provide a reasonable time could lead to a judge overturning the agreement if the agreement ends up before the court. Typically, six months is considered a reasonable period for a non-solicitation clause's operation. This time period is determined in consideration of the nature of the employee's work and the field in which they operate.

However, the reasonability of the period stated will directly relate to your ability to justify the existence of the clause and the importance of the clause in that employee's situation.

If the employee is someone who was in a senior role, where they formed strong bonds with clients, regularly interacted with suppliers, and oversaw numerous employees, then it might be possible for a 12-month non-solicitation clause to be used.

This is because these employees most likely built strong relationships with their clients to the point where the clients are more loyal to them and the service they provide, not because they derive the benefit specifically from your business.

Given the personal connection between the parties, some clients may be happy to follow the employee to a new company, which is the last thing you want as a business owner. Therefore, you may want to implement a non-solicitation clause to prevent clients from following employees to new companies.

Additionally, you want to protect against employees soliciting other employees from your company. In the instance of a manager, they will have close ties with employees and have the power to sway employees to behave in their favor. For this reason, you may want to implement a non-solicitation clause to prevent them from poaching your employees if they move to a new company.

Final Thoughts

Employees, suppliers, and clients are the backbone of any business. Your business should have a non-solicitation clause for employees to protect against previous employees having the power to poach your existing employees, suppliers, and clients. (Related article: End on a Good Note: 12 Best Practices for Firing an Employee)

About the author

Corey Philip

Corey Philip is a small business owner / investor with a focus on home service businesses.

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