Non-Competition and Non-Solicitation
What is a non-competition or non-solicitation covenant?
Many employment contracts contain clauses limiting an employee's ability to compete against the employer for a certain period of time after the employment ends. These provisions are referred to as "non-competition and non-solicitation covenants". A non-competition covenant limits any competing business whatsoever, while a non-solicitation covenant simply limits the employee from contacting the company's clients, suppliers and/or employees.
Who is bound by non-competition and non-solicitation covenants?
In the vast majority of cases, employees must sign a written agreement in order to be bound by non-competition and non-solicitation covenants. However, some employees called "fiduciary employees", can be bound by non-competition and non-solicitation obligations even without a corresponding clause in their employment contract. Fiduciary employees are those to whom the company is particularly vulnerable, like senior executives, or employees who are the public face of the company.
Are non-competition and non-solicitation covenants enforceable?
In order to be enforceable, restrictive covenants must be drafted in a way that the court considers to be reasonable and understandable to the employee. This may prove more difficult than it sounds. Courts have developed specific requirements for both non-competition and non-solicitation covenants. They also consider the reasonability of the limitations in the specific context of the employee. If the covenant is unreasonable, the court will simply treat it as if it does not exist.
Non-competition covenants must be time-limited (usually around 6 months following the end of employment) and subject to clear, reasonable, and easily ascertainable geographical limitations. The provision must be reasonable enough that it does not prevent the employee from earning a living in the same industry.
Non-solicitation covenants must also be time-limited (generally, around a year from the date the employment ends). The employee must also be able to easily ascertain exactly who they are prevented from soliciting. For instance, a multinational company would likely not be able to prevent former employees from soliciting all of its clients, since the employee may not know who is or isn't a client. A non-solicitation covenant that effectively operates as a non-competition covenant may be unenforceable unless it is extremely limited.
What can a company do if a former employee is soliciting its clients?
It is common for client-facing employees to be "poached" by a competitor or to start their own business, taking their client list with them. Generally, the first step is to send a letter to the former employee insisting that they obey their non-competition and non-solicitation covenants. If the conduct continues, the employer may sue the ex-employee for the breach. The court can award injunctive relief if the employer presents evidence that the business could suffer irreparable harm. If the damage is already done, the court may order a monetary award based upon either the profits gained through the breach, or profits lost by the business. We strongly recommend consulting with an experienced employment lawyer prior to taking any action against the former employee.
What can Hyde HR Law do for my company?
The lawyers at Hyde HR Law are experts in non-competition and non-solicitation obligations, including taking legal action against former employees and competitors for any breach. We will advise you on best practices for safeguarding your business interests and help you protect your clients, suppliers and employees, by drafting enforceable non-competition and non-solicitation agreements. We have represented countless employer clients in legal proceedings, enforcing their rights to protect their business from departing employees. Contact us today.