What is a non-solicitation agreement?
A non-solicitation agreement is a binding contract between an employer and an employee that restricts the employee from soliciting business from the employer’s existing clients or customers. The agreement may also contain a prohibition on general solicitation of the employer’s employees, contractors, subcontractors, or other workers to either leave the employer or work for a competing business. In Florida, Section 542.335(1)(c) , Florida Statutes provides that non-solicitation restrictions are "legitimate business interests" sufficient to justify the protection of these restrictions under Florida’s non-compete statute.
The primary purpose of non-solicitation agreements is to protect an employer’s legitimate business interests. An employer has a right to reasonably protect their customer relationships and goodwill from the risk of a former employee using company resources, skills, or trade secrets to unfairly compete with the employer. A non-solicitation agreement is a valuable tool in preserving the employer’s investment in its clientele and employees. Although both non-compete agreements and non-solicitation agreements can prevent employees from competing with their former employers, a non-solicitation agreement is generally less restrictive and thus is easier for courts to enforce.
Requirements for Legal Enforceability
To be enforceable, a non-solicitation agreement must meet certain legal criteria. Specifically, it must be "reasonably necessary" to protect "legitimate business interests." " Fla. Stat. § 542.335(1). Moreover, the time and restrictive covenants must be no greater than required for protect these legitimate interests. Id. Generally, an agreement is not enforceable if its restrictions are overbroad. Overbroad restrictions include time provisions that are greater than what’s necessary to protect legitimate business interests. In other words, a restriction that deletes or modifies a portion of a preexisting covenant will not be voidated. As a preliminary matter, courts must first determine whether a given interest is "legitimate." Some examples of legitimate business interests include: These lists are not exhaustive. Fla. Stat. § 542.335(1). In addition, Florida defines a "legitimate business interest" as including but not limited to: (1) Trade secrets, defined as information, without regard to form, that is a formula, pattern, compilation, program, device, method, technique, or process that: (2) Important, valuable, confidential information that is not a trade secret; (3) Exclusive or near-exclusive customer or client relationships; (4) Extraordinary or specialized training; or (5) Special impairment of reputation or client base. Fla. Stat. § 542.335(1)(b). Once the parties have ascertained whether a legitimate interest under Florida law exists, they must establish a reasonable time restriction. Courts are more likely to find the restriction reasonable if the time period matches how long the employee had access to the information sought to be protected. Also, courts generally have held that eighteen months is a reasonable amount of time. However, lengthier periods, depending on the particular facts, can also be considered reasonable. For instance, in Griffin Glass, Inc. v. Gunter Glass, Inc., 961 So. 2d 1100, 1103 (Fla. 1st DCA 2007), the court upheld a two year non-solicitation agreement because it followed the duration of the employee’s access to the customer list. In contrast, the trial court determined twenty-four months was unreasonable based on the customer’s three-month buying cycle. Further, a restriction that is tailored to fit the legitimate business interest of the party seeking enforcement is most likely to be enforced. In Madonna v. Squires, 713 So. 2d 1071, 1072 (Fla. 4th DCA 1998), the court found the one year time restriction reasonable because it was limited to the amount of time in which defendant would have contacts with the company and therefore, the employee’s access to the confidential customer list. Id. In contrast, the court in Florida Power and Light v. Cotton, 2010 WL 2136450, at *8 (S.D. Fla.), found the six month restriction unreasonable because it impermissibly extended beyond the date of plaintiff notified the employees it would shut down its Miami office. Id. Courts will uphold a reasonable restriction even if it may have been unnecessary in that particular case. Id. This is because Florida courts generally do not consider whether the restriction is reasonable under the circumstances. In short, Florida courts strictly apply the "rule of reasonableness" in examining reasonableness.
Comparison with Non-Compete Agreements
Generally speaking, a non-solicitation agreement is broader than a non-compete agreement. While a non-compete agreement only prohibits the departing employee from working for or providing services to a business that competes with its former employer, a non-solicitation agreement generally prohibits a former employee from soliciting customers or clients of the former employer to their new employer. In this sense, a non-solicitation agreement can provide broader protection than a non-compete agreement by prohibiting a departing employee from soliciting the business or goodwill of customers regardless of whether that company is technically in competition with the employer.
Further, non-solicitation agreements are often easier to draft because it is often easier for employers to identify customers or clients who shouldn’t be contacted than to define what would constitute an unfair advantage over a competitor. Within the context of physicians, for example, non-compete agreements can be difficult to construct because physicians can often assert that they are not in competition with their former employees until and unless a patient actually follows them to the new practice.
Non-solicitation agreements, in contrast, are generally easier to draft and enforce because an employer can simply prohibit its former employees from soliciting its patients, clients, customers or employees.
Recent Court Decisions and Legal Interpretations
Florida courts have addressed various aspects of non-solicitation agreements, examining their reasonableness, the adequacy of consideration, and other issues.
Temcor, Inc. v. Echevarria, No. 04-70006-CIV-MARTINEZ/LYNCH, 2006 WL 1007740 (S.D. Fla. April 18, 2006) – After Temcor terminated Echevarria, he began competing with the company. Temco sought to enforce the non-compete and requested a temporary restraining order. Echevarria argued that the agreement was not supported by adequate consideration because there was no specific mutual exchange of value when he first entered the contract. The court agreed with Echevarria and denied the TRO.
American Aerospace Advisors, Inc. v. West, No. 07-21754-CIV, 2007 WL 1239294 (S.D. Fla. April 25, 2007) – West, a former broker for American Aerospace Advisors, Inc. ("AAA"), was alleged to have emailed AAA’s prospects after his departure from AAA. AAA sought an injunction against West for breach of the non-solicitation provision in his employment contract. The court found that West approached his position with substantial experience, and he was paid substantial commissions, adding that "this is an industry that is generally not known for its problems with reasonable non-compete covenants." The court then ruled the non-compete provision of West’s employment contract was an unreasonable restraint on trade.
A&M Construction & Utilities, Inc. v. A & M Engineers, Inc., 743 So. 2d 1 (Fla. 4th DCA 1999) – A&M Construction sued A&M Engineers, among other defendants, to enforce a non-compete agreement between A&M Construction and Robert Cozart, a former vice president. The trial court dismissed the claims against defendants other than Cozart. After A&M Construction appealed, the court denied the motion to dismiss for attorneys’ fees and the order denying the motion was reversed.
Benrock Realty Co v. Seiler, 667 So. 2d 932 (Fla. 3d DCA 1995) – Benrock Realty Company ("Benrock") was a real estate developer and investor. Seiler, one of Benrock’s vice-presidents, had both a non-solicitation agreement and a non-compete agreement with Benrock. After Seiler was terminated, Benrock brought action seeking the enforcement of the provisions. The trial court found the non-solicitation provision to be enforceable and the non-compete provision to be unenforceable.
The cases demonstrate that the outcome may depend on the specific circumstances.
Common Pitfalls to Avoid in Drafting Non-Solicitation Agreements
Businesses will often run into problems when they do not consider the practical implications of their agreements. One of the most common mistakes that I see is a non-solicitation that is simply too broad. Often times my client’s business model relies on their employees being able to solicit customers or employees after terminating. Expanding the prohibited period will often be used against an employer who attempts to enforce it. For instance, if the employer has a non-solicitation agreement that covers one year after termination as opposed to six months , you can be rest assured that it will be used against the employer.
I have also seen problems when an employer interrupts the prohibited period by hiring the former employee. Although some people may think that hiring the former employee and then attempting to have them non-solicit their clients would save them from contract damages, it does not. The period is not paused. It continues to run. Make sure that your business model allows for the non-solicitation agreement before entering into one.
Finally, I have also seen non-solicitation agreements that are very vague. Vague and ambiguous terms are a recipe for disaster. Too many times I meet with clients who have non-solicitation agreements that lump all of their different divisions or business entities into the same agreement. This should be avoided if possible. If there is any way at all, separate agreements should be advised.
Practical Guidelines for Compliance
When implementing non-solicitation agreements, Florida employers should:
1. Ensure that the enforceable scope of the restriction for the solicitation of customers or clients is reasonable. Employers and their counsel should consider factors such as:
a. The industry or trade at issue, especially whether a strong need exists to prevent an employee from "taking" his or her employer’s clients with him or her.
b. The geographic location of the problems that might occur if the employee left with his or her employer’s customers and clients.
c. The standard in the industry with regard to what is considered a reasonable scope of territory or location from which a client or customer may be solicited.
- Avoiding overly broad prohibitions against solicitation, especially of clients or customers with whom the employee has had no contact.
- Avoiding overly broad prohibitions against solicitation of other employees, particularly those with whom the employee has not or would not have contact.
- Making sure the time period for the restriction is reasonable in light of the employee’s access to clients or customers, type of work, and anticipated scope of use of confidential information.
- Considering whether the agreement should contain and qualify for any injunction or other equitable relief.
- Ensuring that the agreement has been reviewed in light of the Florida Supreme Court’s 2015 decision in Salon/Spa Chakra LLC v. Ursini, 173 So.3d 431 (Fla. 2015) (discussed above).
- Avoiding drawing the distinction between solicitation of customers and solicitation of co-workers or employees of the employer. Doing so could create issues down the line with the courts just as it did in Salon/Spa Chakra LLC v. Ursini.
Rights and Considerations of Employees
In Florida, as well as most other states, non-solicitation agreements are generally disfavored. Apart from the obvious limitation on an employee’s ability to earn a living after the termination of his or her employment, employees are often asked to agree to such provisions at or near the time of hire, without full information regarding the implications of such an agreement, or the rights they retain. Now that the global economy is somewhat more buoyant, the ability to negotiate away some of the terms contained in non-solicitation agreements should be considered strongly. There is no "typical" non-solicitation agreement, and therefore each proposed agreement should be reviewed carefully by legal counsel, to ensure that the terms of the agreement are not giving up more than is required. In all instances, for an employee to understand his or her rights, it is important that legal counsel be involved in the review process, so that the employee understands not only his or her rights under the proposed agreement, but also the limitations under the law in Florida of non-solicitation agreements.
Importance of Seeking Legal Counsel
For employers and employees, an experienced legal counsel can make critical difference in their respective rights and obligations under a non-solicitation agreement. In some cases, an employer may believe it is necessary to broadly prohibit a former employee from contacting potential new clients, as though the individuals were former customers or clients of the employer, when the circumstances may call for a more tailored approach. In other cases , an employee believes the employer is attempting to restrict his or her ability to work for future employers by misconstruing limitations on future employment for solicitation of future customers and/or employees. In either case, having an attorney with experience in the enforcement of non-solicitation agreements can be invaluable in either drafting or challenging the enforceability of the agreement.