During a layoff or RIF event, there’s always a lot of talk about severance agreements and layoff scripts . This is largely because these two documents can help you negate the possibility of a future lawsuit and protect your organization. But there’s another document you should consider that can also prove as valuable: a non-solicitation clause.
Depending on your industry, a non-solicitation clause can protect your company after a layoff or reduction in force (RIF) by making sure that the outgoing employees cannot take your clients with them to their next company. This can help get your business back on track to meet its goals following your reduction event.
To help you with this, we’ve created this brief guide to cover the following:
Let’s get started.
Put simply, a non-solicitation clause is a legally binding contract between an employer and an outgoing employee which states that the employee will not solicit the company’s clients, customers, or ideas for their own gain or for the gain of their next employer.
Some non-solicitation clauses can also state that the outgoing employee will not solicit other individuals from the organization, meaning that they will not try to take other employees with them when they exit.
This non-solicitation clause is typically included in the original employment agreement signed by an employee when they first start working at an organization. However, even if this is not the case and a non-solicitation agreement isn’t in place yet, it can be offered to employees at any time throughout their employment–not just when they are going to be terminated.
The timing and details of this will largely depend on your organization’s culture and policies, including what you need to include in the agreement to keep your business protected. As always, make sure you work closely with your legal team when handling any layoff or reduction event , or crafting any legal contracts in general, to ensure you are complying with all local, state, and federal laws.
While there are numerous reasons why you’d want to implement a non-solicitation clause, some organizations and situations tend to utilize them more heavily than others.
The most common use for a non-solicitation clause is to keep your client base intact when someone exits your organization. This means that businesses which heavily rely on sales (where retaining client accounts is crucial) are much more likely to use one of these clauses than other organizations which, say, manufacture goods.
That’s not to say that other organizations don’t use them–it’s just a bit more rare. But it can prove just as beneficial for these employers, so it’s always good to consider using.
Even if your organization sells something that isn’t terribly unique, but is competitively priced, you might still want a non-solicitation clause in place with your employees, who would be familiar enough with your company’s pricing model to be able to lure away your customers.
Non-solicitation clauses also vary depending on the state your organization is operating in.
For example, a non-solicitation agreement in California is not legally binding because the state heavily values employee mobility, allowing them the freedom to compete for clients even if they are trying to take them away from their former employers.
That said, most other states do enforce non-solicitation agreements when it comes to soliciting clients. So make sure you consult your legal team about the enforceability and requirements for non-solicitation clauses in the states applicable to your organization.
You can also help bolster the enforceability of a non-solicitation agreement with additional communication and steps taken during the layoff process, such as better managing how and when you announce your layoff event .
This includes providing your employees with accurate and timely information about the layoff event to prevent misinformation or retaliation. It’s not reasonable to expect you can keep a layoff secret , but with timely notification, honest and open communication, and your thorough non-solicitation clause, you can manage how employees and clients learn of the event and how smoothly the layoff process goes.
It’s also important to note that non-solicitation agreements are not the same thing as non-compete agreements, which state that employees cannot work for competing firms when they exit their current organization.
Both of these agreements set rules for ex-employees to follow after they make their exit. However, non-solicitation agreements do not hinder an employee from working at another, similar organization. Instead, they curb how much of the first company’s business the employee can take with them when they leave.
This can still create problems for your organization, if your non-solicitation agreement makes it too difficult for an employee to make a living after leaving the organization. This might render the non-solicitation clause unenforceable.
It may seem like a non-solicitation agreement wouldn’t have this issue, since the outgoing employee isn’t being restricted from working in their chosen profession. In contrast, a non-compete clause often does hinder a former employee’s future career opportunities.
However, even a non-solicitation clause can severely limit what that employee can do at their future employer, or what value they have to bring to the next table, by restricting their ability to contact any former customers or coworkers. So it’s important that you do not try–or even appear to try–to kneecap an employee’s career after they are let go from (or choose to leave) the organization.
When it comes to writing the actual non-solicitation agreement, there are a few elements that need to be in place to ensure it is enforceable by law.
First and foremost, you need to make sure that you have a valid business reason that makes logical sense. You can’t expect your non-solicitation clause to be enforceable if you do not have a valid reason for enforcing one.
If your non-solicitation agreement is intended to protect your customer list, proprietary knowledge, trade secrets, or other sensitive information that could directly impact your business, you have a valid reason.
This means that you shouldn’t use a non-solicitation agreement just to use one. You need a good reason. One that makes logical sense.
Next, you need to make sure that your customer base is not readily available to the public. This means having a customer list that you have spent time, money, and energy to establish yourself. Your customer list cannot be a list of prospects you’ve downloaded from an outside source or database, as that would be information already available online to anyone who wishes to find it.
In other words, your customer list needs to be your own list of actual customers, and therefore be private information of unique value to your business that is worth protecting. If anyone can easily figure out your customer list and information by looking it up online or in another public resource, then a court of law probably won’t enforce your non-solicitation clause to protect it.
Lastly, for your non-solicitation agreement to be enforceable, you must include two more elements. Your employees and customers must be given a choice to leave at their own will. And finally, your non-solicitation contract must not be in any way ambiguous.
In summary, you need a valid reason to use a non-solicitation agreement, that is designed to protect your own crafted customer list, in a non-ambiguous contract that allows your employees and customers the freedom to leave of their own choice. If you do not have any of these things, you cannot expect your non-solicitation clause to hold up in court.
This is where legal counsel comes in. Work closely with your legal team to ensure you have a valid reason to use a non-solicitation clause and that everything you are trying to do complies with local, state, and federal laws.
Now that you have a good understanding of when and how to craft a non-solicitation clause for your organization, and what elements you’ll need to include in the agreement, let’s put it all together with some examples.
Below are a few options of sample non-solicitation clauses for the most common scenarios to give you a good starting point for your own needs. Remember to customize these to your specific organization and situation with the help of your legal team.
“During the period of (Employee Name)’s employment on (Effective Date) and ending one (1) year after the date of voluntary or involuntary termination, (Company Name) will not indirectly or directly solicit or encourage an individual to leave the company and work for a competitor without the advisor’s prior written consent.
(Employee Name) shall not hire an individual on behalf of (Company Name) or any other person who has left their employment with (Company Name) following one year after (Employee Name) termination. During the one year after termination, (Company Name) will not intentionally interfere with the advisor’s relationship or its affiliates.
(Employee Name) will not entice away from the advisor or the advisor’s affiliates during the one year period after termination. (Employee Name) shall not solicit any co-investors, co-developers, tenants, joint, venturers, or any other advisor’s customers or the advisor’s affiliates.”
“During the term of (Employee Name)’s employment and for two (2) years after employment is terminated, (Employee Name) will not indirectly or directly solicit to hire, hire, or engage with any individual who is engaged as a consultant, contractor, or is employed by (Company Name).
(Employee Name) will not interfere with the relationship between (Company Name) and any person engaged as a consultant or contractor employed by (Company Name). (Employee Name) will not solicit, divert, contact, or call upon customers of (Company Name) with the intent of doing business.
(Employee Name) will not solicit a customer for a competing company and will not encourage a customer to discontinue business with (Company Name). (Employee Name) will not interfere with the relationship between (Company Name) and any of their manufacturers, suppliers, service providers, or any other individual (Company Name) does business with.”
If you need something a bit shorter to fit into a much larger contract, below is a more succinct non-solicitation clause sample that still covers the basic protections you might need:
“During (Employee Name)’s term of employment and for a one (1) year term following (Employee Name)’s termination, (Employee Name) shall not solicit or encourage any employee, vendor, independent contractor, or client of (Company Name) to leave employment or terminate their relationship with (Company Name) for any reason.”
You can also include a non-solicitation clause in an independent contractor contract, which follows roughly the same process as with an employee contract.
Simply choose the non-solicitation clause sample above that best suits your organization and situation, and then substitute each occurance of the “(Employee Name)” with the “(Contractor Name)” instead.
This might look something like this:
“During the term of this Agreement and for a one (1) year term thereafter, (Contractor Name) shall not solicit or encourage any employee, vendor, independent contractor, or client of (Company Name) to leave or terminate their relationship with (Company Name) for any reason.”
Remember that these sample non-solicitation clauses are merely examples to give you a starting point. It’s important that you work with your legal team to craft and finalize your specific non-solicitation clause wording before sharing with your employees or independent contractors for their signature.
There are, of course, things that a non-solicitation agreement will not be able to stop. So these non-solicitation clause exceptions are good to watch out for, to make sure no outgoing employees are taking advantage of them.
For example, if people voluntarily leave your organization to follow the departed employee to another organization, a non-solicitation clause will not matter because those individuals chose to leave of their own volition without being solicited.
The same can be said for your clients and customers. If they find out that their favorite sales representative is leaving the company, they can choose to move their business to the company where the departed employee goes next, as long as they are not directly solicited by that employee.
This all comes down to whether or not these customers or employees are leaving because they were prompted by the outgoing employee to do so. If they were not, there’s not much that you can legally do about it. After all, your customers are free to choose who they do business with, and an internal policy at your organization isn’t going to change that. The same can be said for the retained employees who decide to jump ship. Unless these groups are pressured or enticed by the ex-employee, their decision to leave is out of your control.
When it comes to offboarding talent, a non-solicitation clause can help protect your company by ensuring that the person leaving will not solicit your clients or other employees into moving to another company with them.
There are different rules and regulations regarding non-solicitation agreements across the US, and depending on your specific situation or reduction event . So make sure to work with your legal counsel to ensure that your agreement is legally binding and complies with all local, state, and federal laws.
In order for your agreement to be enforceable, you need to ensure that you have a valid, logical business reason to use one. This means that your customer list has to be of value to your specific business, or that you are trying to protect trade secrets or other sensitive information from your competitors.
This all needs to be covered in a non-ambiguous contract that still offers your customers and employees the choice to leave of their own volition. Non-solicitation agreements do not protect you from customers, employees, or clients jumping to a competitor if they made that choice on their own, even if they do so because your ex-employee now works there. As long as your ex-employee isn’t pushing them to come join them at the competing company, they are free to do what they choose.
Want to learn more about non-solicitation clauses?
Rebecca is a writer, editor, and business consultant with over 10 years of experience launching, managing, and coaching small to midsize companies on their business, marketing, and HR operations. She is a passionate people advocate who believes in building strong people, teams, and companies with empowering culture, content, and communication that facilitates meaningful results at every level and touchpoint. In her spare time, Rebecca is an avid traveler and nomad who also enjoys writing about travel safety and savvy. Learn more on her LinkedIn page.
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