Businesses create all sorts of intellectual property—like copyrights, customer and pricing lists, and the like. Given that, it is very understandable that a business would want to protect these assets (especially items like client lists and pricing lists) in those cases where an employee quits or gets fired and goes to work for a competitor in that geographic area.
In that case, the former employee may want to solicit former customers or co-workers to join them and jump ship—which could put the business at risk of losing valuable team members and customers.
So, what prevents that from happening? A non-solicitation agreement, that’s what.
What is a Non-Solicitation Agreement?
Non-solicitation agreements are employment contracts between a business and an employee in which the employee agrees not to solicit any of the business’s customers or other employees for a certain length of time after they leave the job.
Non-solicitations can either be their own stand-alone contract or can be used/found as a non-solicitation clause that is part of a larger employment agreement. Either works, and either is legal.
The purpose of a non-solicitation agreement is to protect the business if and when an employee leaves the company.
When Are Non-Solicitation Agreements Used?
Non-solicitation agreements are most often used with employees who have direct contact with customers or otherwise have access to customer lists. This might be the case, for example, in sales and service businesses where contact between employees and customers is quite common. Such employees might include salespeople, office administrators, and/or managers.
For example, if the employee were to ever leave the employment of the business, they might be inclined to try to use some confidential information that they were privy to (like a confidential customer list) and bring some of the company’s customers or other employees along with them to the new venture.
This can especially happen when two companies compete on price. If a worker knows their former employer is charging more for something, they can entice their former customers to the new venture with lower prices.
Having employees sign an employment agreement forbidding solicitation prevents that from happening—which is both legal and smart.
When Should You Have Employees Sign Non-Solicitation Agreements?
While companies typically have people sign these types of contracts when they are hired, that is not a requirement. These agreements can be signed at any time during the course of employment, even as part of a severance agreement.
That said, it makes the most sense to have employees sign these sorts of agreements upon hiring; in fact, many companies make the signing of such agreements a condition of employment.
That way, employees know what is expected of them from the very start—and they understand that protecting customer lists is an important part of the company culture.
Are Non-Solicitation Agreements Enforceable?
Yes, these sorts of contracts are generally legally enforceable—with a few exceptions. Specifically, there are two states in which these agreements are limited—California and Illinois.
First, California. California has a long and rich legal tradition of encouraging competition and employee mobility. In fact, Business and Professions Code, Section 16600 states, “In California, contractual provisions that prevent a person from engaging in a profession, trade or business are generally void,” meaning non-solicitation (and similarly, non-compete) contracts are “generally void.”
The recently passed Illinois Freedom to Work Act states that an employer is forbidden from entering into a non-solicitation agreement unless the employee’s income exceeds $45,000 per year.
Per the law, this amount “shall increase to $47,500 per year beginning on January 1, 2027, $50,000 per year beginning on January 1, 2032, and $52,500 per year beginning on January 1, 2037.” Non-solicitation agreements that violate this law are “unenforceable.”
As indicated, outside of these states, non-solicitation agreements are typically enforceable if the agreement meets certain criteria (see below).
The Elements of a Binding Non-Solicitation Agreement
To create a legally binding non-solicitation agreement, generally speaking, a few things must be present:
- Legitimate business reason: First, there must be a legitimate business reason for the clause or contract, such as protecting a valuable customer list, trade secrets, price lists, or preventing the exodus of valuable employees.
- Real and confidential business asset: Second, with regard to the client list, that list must actually be a real and confidential business asset. The company needs to have put time and effort into getting their customers, and their information must not be easily or publicly accessible.
- No undue hardship on the employee as a result of the agreement: Next, the agreement cannot put an undue hardship on the employee—meaning the prohibition cannot, in the eyes of the state, last too long, be too broad, or stop the employee from pursuing other work. For example, a non-solicit that purports to last for five years would very likely be considered too long to be enforceable (two years is generally the rule).
- No restraint on trade: Finally, the agreement cannot be a “restraint on trade.” That is, an employee has to be free to leave the employ of a business and join a rival if they so choose. What the employee cannot do is leave and steal customers or fellow employees.
Is a Non-Solicitation the Same as a Non-Compete Agreement?
Nope, a non-solicitation agreement is not the same as a non-competition agreement or non-compete clause.
A non-solicit prohibits a former employee from poaching customers or workers for a new company, while a non-compete agreement prohibits an employee from taking other employment—for example, with a competitor.
As such, non-competes are seen by many courts as, in fact, a restraint on trade—and therefore their use is much more limited.
What is in the Typical Non-Solicitation Agreement?
As stated, a non-solicitation agreement cannot just be an open-ended prohibition on solicitation. Like any good contract, it must be specific to be enforceable. That is, the prohibited activities must be laid out in the agreement, along with a reasonable timeframe and, possibly, a certain geographic region.
A typical non-solicitation agreement or non-solicitation clause might have the following elements:
“The employee, for the duration of their employment with the employer and for two years afterward, agrees not to:
- Recruit, hire, or solicit any individual who currently works for the employer or who has worked for the employer for six months prior to any solicitation;
- Engage in any behavior that would cause an employee to be terminated by the employer, such as trying to induce an employee to leave the employer and work for a competitor;
- Engage in any conduct that would interfere with the employer’s relationships with its customers;
- Engage in any conduct that would interfere with the employer’s relationships with vendors, consultants, employees, suppliers, or contractors.”
Notice that the agreement is both specific and limited. It sets out precisely what is forbidden and for what period of time.
What to Do When a Non-Solicitation Agreement is Breached
Courts understand that businesses put a lot of time, money, effort, and resources into building up their company’s clients—and as such, the law offers legal protections when someone illegally steals those customers for a competing business.
If a company believes that a former employee has breached a valid non-solicitation agreement, there are three options, all of which require seeking legal advice from an employment attorney who specializes in employment law.
- Write a cease and desist letter: First, their lawyer could write a cease and desist letter (i.e., a letter outlining an alleged wrong, telling the receiving party to stop doing it immediately, and threatening further legal action if they do not comply). The letter should include the specific contract or clause in question, the employee’s legal obligations, and a threat of further, expensive legal action.
- Sue for injunctive relief: Next, the company could sue for what is called “injunctive relief.” What a business will want, aside from monetary damages, is a ruling stopping the former employee from continued solicitation. This is called a “restraining order.” A restraining order is one type of injunctive relief.
- Sue for breach of contract: Finally, a suit for breach of contract and financial damages is an option. If a former employee steals clients illegally, there is no doubt that that action costs the previous employer money—and could warrant a lawsuit to reclaim that money.
Non-Solicitations Can be Valuable Business Tools
Because courts typically uphold non-solicitation agreements, such contracts can be a valuable tool for small businesses.
By having employees sign them, a small business can protect its customer list and staff while also reducing the likelihood that a current employee will jump to a competitor and take valuable clients with them. As such, these contracts protect legitimate business interests.
Given that, it’s important for business owners to work with their attorney or law firm to create a carefully drafted non-solicitation agreement—and have all employees and prospective employees sign said agreement. That way, if and when they do leave for a new job with a new employer, they won’t try to take your valuable customers with them.
1. Introducing Yourself
Your introductory email needs to pack a lot of information into a small package. Try something like this:
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Hello Jane,
My name is John Doe and I work for ABC Agency, where we provide business insurance policies to many of Dallas' rockstar small businesses.
Congratulations on your new business, Jane's Bakery. Are you wondering if you have all the insurance you need? Or if your policies will really cover you in a pinch?
At ABC Agency, we pride ourselves on providing robust, comprehensive coverage options to companies like yours with flexible, pay-as-you-go plans.
Are you available this week to talk more about how we can help? I can help you find the most affordable rates and the best policies out there.
I look forward to speaking with you soon.
Cheers,
John Doe
2. Presenting a Quote
Once you've met with your potential client, a quick reply with their quote will get the ball rolling.
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Hi Jane,
Thanks so much for meeting with me this morning. I loved touring Jane's Bakery–I can still smell those delicious chocolate chip cookies baking! You have a great location, and I'm sure you're going to do great on Front St.
After reviewing my notes, I've pulled together an insurance quote for you (attached). I recommend a business owner's policy. A BOP includes several insurance products in one: liability, property insurance, and business interruption insurance. It offers robust coverage at a competitive price.
I'll call you in a few days to see what you think about this insurance plan. In the meantime, if you have any questions, don't hesitate to email me or call me at [phone number].
Again, thank you for your time today. I look forward to working with you in the future.
Cheers,
John Doe
3. Thanks for Purchasing a Policy
Gratitude is important! It's never a bad idea to thank your clients for their business.
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Hi Jane,
Thank you for choosing a business owner's policy with ABC Agency. We know it's so important to get the right coverage for your business, and we are honoured you've placed your trust in us.
We're excited to work closely with you, and our no. 1 goal is to make sure you're business is always protected.
Do you have any questions? We are here to help. Reach out whenever something comes to mind.
Thank you again for choosing ABC Agency to insure Jane's Bakery.
Cheers,
John Doe
4. Welcome Email
A welcome email helps clients feel like you're there to help–and can softly pitch other insurance products you offer.
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Dear Jane,
Welcome to the ABC family! We are thrilled to have you as a new customer and can't wait to meet all of your insurance needs.
As an independent insurance agency, we work with multiple insurance providers to find the best coverage options for all our customers. If you need any other type of insurance–like [include additional offerings unique to your agency, like life insurance, health insurance, home insurance or anything else]–we can help you too.
Do you want to discuss any of these policies?
Cheers,
John Doe
5. Introducing a New Product
A happy client may want to expand their business with you.
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Hello Jane,
I hope all is well with you and Jane's Bakery. I stopped in yesterday for a blueberry muffin and coffee, and they were delicious. I loved the hint of cinnamon in the muffin! Was that your idea?
I wanted you to be the first to know we are now offering commercial vehicle insurance to our policyholders. Auto insurance for your catering vans is super important since your personal car insurance won't cover them.
We're offering this insurance coverage solely to our current business clients at the moment and have some very competitive rates.
Would you like me to work up a quote for you?
As always, thanks so much for being a part of the ABC family.
Cheers,
John Doe
6. Asking For Referrals
Once your relationship is established and comfortable, let your clients help you grow.
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Hi Jane,
You've been a valuable member of the ABC family for two years now, and we so appreciate your business–not to mention the muffins you supply for our monthly meetings!
Because you are a valued policyholder, I wanted to ask a quick favour. I know you are active in the local Chamber of Commerce, and I'm hoping you might know some colleagues who would benefit from working with our insurance company.
Referrals are one of the most effective ways to connect with our community since people really trust their friends, family and colleagues. Is there anyone you'd recommend I speak with?
Remember that in addition to business insurance products, we offer everything from life insurance policies to pet insurance.
As a thank you for your help, we will send you an Amazon gift card of $100 when your referrals buy insurance from us.
Thanks so much for your help!
Cheers,
John Doe
7. Policy Renewal
If your client needs to renew their policy with you, send an email like this:
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Hi Jane,
I hope you're doing well! What a year it's been—from being listed as one of the top 5 bakeries in Dallas to being an official vendor for the city—you have so much to be proud of.
Just a heads up that your business owner's policy is up for renewal soon and will expire on June 15, 2023.
If you're still happy with the coverage, we can easily renew it for you.
Do you have some time to chat this week?
Looking forward to serving you again!
Cheers,
John Doe