For most entrepreneurs, the three essential ingredients in keeping a business running successfully are (1) employees, (2) vendors and (3) customers. When someone with inside knowledge about your employees, vendors or customers leaves the company, the business becomes vulnerable to losing these critical assets to competitors. So, to protect your company from such risks, consider using a nonsolicitation agreement.
What Is a Nonsolicitation Agreement?
A nonsolicitation agreement creates a contractual relationship between an employer and an employee, restricting whom the employee can solicit after leaving the company. These agreements prevent former employees from using information gained while working for you for the benefit of your competitors. You can incorporate nonsolicitation provisions into other agreements, such as employment contracts, or they can stand alone. These provisions also may be used in conjunction with nondisclosure agreements to prohibit former employees from using your company's trade secrets and confidential information, including information about customers, key employees and vendors. In any event, the goal of nonsolicitation agreements is to protect the relationships which you, as a business owner, have developed over time so that competitors cannot gain access to them through one of your former employees and use those relationships for their own benefit.
To ensure that your nonsolicitation agreement is enforceable, it is vital to keep a few points in mind.
●State Law. The legislation pertaining to nonsolicitation agreements varies from state to state because states must balance competing interests—protecting a business owner's hard-earned sweat equity while promoting healthy competition and the right of employees to freely seek employment without restriction. In California, nonsolicitation agreements are unenforceable on the public policy grounds that they infringe on one's freedom to pursue gainful employment and business opportunities. In other states, however, enforceability differs depending on the profession or industry in question. Understanding the specifics of your state's laws is therefore critical to ensure that your nonsolicitation agreement is enforceable.
●Scope. If a nonsolicitation agreement or provision is found by a court to be overly broad, it will most likely be deemed unenforceable if a former employee contests it. For example, a nonsolicitation agreement cannot restrict a departing employee from working with a company in an industry which does not directly compete with the original employer's business. The agreement must address the specific areas of competition at issue. When drafting nonsolicitation agreements or provisions, it is imperative to limit the scope of the restriction to the specifics of your particular business.
●Duration. Many state courts will find an agreement unenforceable if the term of the agreement is excessively long. For example, in some states, periods exceeding one year have been deemed too long and against public policy. Accordingly, if you are interested in implementing a nonsolicitation agreement, seek the advice of an experienced business law attorney to ensure that the duration of the agreement is limited to the shortest time frame necessary to protect your interests as a business owner.
Reach out to me to discuss the best way to ensure the success of your business by protecting your relationships with employees, vendors and customers. I am here to help you review your contracts and create agreements which provide legal protection preventing