What a Non-Solicitation Agreement?
A non-solicitation agreement prohibits an employee from "soliciting" particular employees of a company or customers of a company for a set period of time. Like a non-compete or non-disclosure agreement, an employer can use a non-solicitation agreement to protect its business by preventing an employee from "raiding" its current employees or "raiding" its existing customers. Those are the two main purposes in drafting a non-solicitation: to prevent raiding of employees, and to prevent raiding of customers.
With respect to protecting company employees, a narrower provision is often used, referred to as a "covenant not to poach or raid employees." Such a provision may state: "for a period of [12 months], employee will not ‘raid,’ or convince any employees of employer to leave their employment, or solicit employees of employer for his own benefit or for the benefit of another company." This type of provision will prevent the former employee from both soliciting (actually persuading) existing employees to leave employer, and also from attempting to recruit those employees over to the new company .
A more broad-provision can prevent both raiding of employees and raiding of customers, and may read as follows: "for a period of [12 months], employee will not (i) solicit for hire or employ (either directly or through another person, entity or firm) any employee of employer, or (ii) not, either directly or indirectly, (a) solicit, offer services to, induce, persuade, divert or encourage to terminate its relationship with employer employee by performing any planning, design or selling activities or project management with, for or on behalf of, any person, corporation, or legal entity (other than employer) with which or for whom employee previously performed similar services for employer (b) divert, or take away, or attempt to do any of the foregoing with, any customer of employer with which the employee had personal dealings or about which the employee had access to or knowledge of confidential information and is prohibited from contacting during employment.
Elements of a Non-Solicitation Agreement
Like restrictive covenants in general, non-solicitation clauses must be narrowly tailored in order to be enforceable. In determining whether a non-solicitation clause is reasonable, the Court will consider the length of time and the geographical area covered by the clause. The scope of the employee’s past activities performed on behalf of the employer, the employee’s new activities and the nature of the employer’s business are also considered.
The duration of the non-solicitation prohibition should be closely related to the non-competition agreement. When no non-compete agreement is involved, non-solicitation clauses of one year are generally considered to be reasonable. When such clauses are included in non-compete agreements, they usually run for the same time period. In locations with competitive employment markets, shorter time periods may be reasonable. In cases in which the employee works out of his or her home and has access to records containing client contact information, protections for three years or more tend to be considered reasonable.
The geographical scope of non-solicitation clauses also varies according to the circumstances. In a specialized field faced with limited competition, non-solicitation clauses of over five miles are enforceable. Conversely, when the business is not highly-specialized, the Court will generally limit the scope of the non-solicitation clause to five or ten miles of the former employer’s office.
The scope of the non-solicitation clause should also cover only those activities that are considered appropriate for restriction in order to be enforceable. For example, non-solicitation clauses that prohibit other activities such as interfering with an employer’s business relationships (e.g., for example, by hiring away the employer’s professional staff) often go too far, especially where there is little competition.
A non-solicitation clause that is too long or broad will likely be deemed unenforceable. Courts will not ‘blue pencil’ (i.e., rewrite) overly broad clauses.
Massachusetts Law on Non-Solicitation Agreements
Massachusetts is one of the states unlikely to recognize a non-solicitation agreement requiring that a former employee not solicit the customer base of the former employer. However, the Massachusetts Supreme Judicial Court has upheld non-solicitation agreements in certain contexts. In Draper Corp. v. Amequi, 1 Mass. App. Ct. 70 (1973), the agreement was considered enforceable because it was intended to protect trade secrets. In Hub Assocs., Inc. v. Goode, 1 Mass. App. Ct. 348 (1973), the underlying employment agreement containing the non-solicitation agreement was not supported by consideration and therefore was unenforceable.
Another Massachusetts court followed this same line of reasoning in Modus Media, Inc. v. Beresford, 76 Mass. App. Ct. 112 (2010). There, the employer’s complaint referenced only the non-compete agreement, and nothing regarding an express or implied contract entered into by the parties apart from the agreement. The employee, however, testified that "he entered into the non-compete agreement as part of a larger contract, separate from his employment contract, which contained a confidentiality agreement." Id. at 116 (emphasis added). It was for that reason that the court denied relief because it was unable to determine if the non-solicitation agreement was supported by consideration through an exchange of promises or through the implied covenant of good faith and fair dealing. Id. at 118.
Enforceability of Non-Solicitation Agreements
The enforceability of non-solicitation agreements in Massachusetts is largely determined by the criteria set forth in the 1995 case of Fafard Real Estate v. D’Agostino, which required that such agreements be no greater than what is necessary for the employer’s protection, reasonable in time and geographical reach, and not oppressive to the employee. More recently, the Massachusetts Appeals Court, in King v. Driscoll, has also required a determination of whether the agreement serves the public interest and whether it is consonant with public policy.
Enforceability of non-solicitation agreements that are ancillary to an otherwise enforceable non-competition agreement is governed by this same standard. The court will focus on the agreement and concurrently analyze its limitations, concluding that stronger restrictions which preclude all competition on the part of an employee will not be allowable unless, in the language of D’Agostino, it is "narrowly tailored" to protect an employer’s legitimate interests.
Public policy considerations are also at issue and may have the most significant impact on the analysis of a non-solicitation clause. This public policy analysis balances the interests in allowing an employer to enjoy the benefit of the services of its former employees against the competing public policy concerns for individuals to choose whether to enter into a restrictive agreement, and for society to choose whether to encourage or discourage trade restraints.
The balance in the state is currently struck in favor of the employee such that, notwithstanding the non-solicitation agreement, the employee is free to solicit his or her former coworkers, including those employees whom he or she may have recruited to work at the company in the first instance, so long as no independent improper means are used. Courts will consider whether this principle would unduly deprive an employer of the benefits of its competitive labor force in determining whether the public interest would best be served by enforcing a broader restriction.
Common potential pitfalls in enforcement of non-solicitation agreements include: the agreement failing to specifically set forth the categories of clients or employees to whom the restriction applies; the agreement not being supported by consideration; and the agreement being unreasonably long or costly to enforce.
Developing an Enforceable Non-Solicitation Agreement
To ensure that a non-solicitation agreement will in fact be enforced by a Massachusetts court, it is important to abide by certain guidelines:
Timing of Execution. The agreement should be entered into at or shortly after the employee’s acceptance of an offer of employment. Being careless about timing may provide the judge with a basis for finding that the agreement is not enforceable. Courts sometimes look back to the time of the original employment offer, but are more likely to look at the time when the agreement was obtained.
Sufficient Scope. The agreement should specifically state what the employee cannot do and over what period of time. The employee should be restricted from contacting co-workers as well as customers, clients or vendors. It is also better to restrict the employee from "soliciting" such individuals as opposed to restricting them from "servicing" such individuals.
Consideration. The agreement must be supported by "consideration." The offer of employment alone provides sufficient consideration and does not require a second form of consideration. During the course of employment, however, the performance of services is not sufficient consideration. Even without additional cash consideration , it is suitable for the employer to sell the agreement to the employee by explaining that successful completion of the period of employment will provide additional security for the employee.
No knowledge of Customers or Competitors. The agreement should provide that if the employee has no knowledge as a result of his employment with the employer, the restrictive covenant will be unenforceable.
Severability. The agreement should be severable. In other words, if a court finds any portion of the agreement to be overbroad, then the court should set aside only that part found to be overbroad, not the entire agreement.
Public Policy. The agreement should include a statement verifying that the agreement is in compliance with Massachusetts statutes and case law. This provides added assurance that the agreement will be enforced.
Miscellaneous. The agreement should be in clear and concise English. It should be signed and dated by the employee. It should be acknowledged before a notary public. The agreement should be kept on file and not forgotten until a dispute arises.
Training. All supervisors, human resources professionals and general employees should be trained on how to deal with non-solicits. When it comes time to terminate or lay off an employee, the person responsible should know about the non-solicit so that this person does not inadvertently breach the non-solicit by making a call to a customer, client or vendor. Supervisors should not discuss non-solicits with their employees, but, rather, should be instructed to contact human resources.
Breach of and Remedies for a Non-Solicitation
If an employee violates his or her non-solicitation agreement, the issue is whether the violation would result in irreparable harm. "Irreparable" means that there is no remedy at law. If damages from a breach could be fixed by monetary damages, then the Court could treat that as the appropriate remedy. If the harm from the breach cannot be addressed by damages, then injunctive relief may be available. The relevant test for injunctive relief in Massachusetts is as follows: (1) a claim of a substantial likelihood of success on the merits; (2) irreparable harm that will be suffered without relief; (3) balancing of relevant these hardships between the moving party and the opposing party; and (4) any effect the decision may have on the public interest. In applying this test, we are guided by the principle that courts will not specifically enforce non-compete agreements against former employees for the benefit of a former employer. If a court finds that a breach has occurred, one common remedy is for the court to issue an injunction barring the employee from soliciting the former employer’s clients for a certain period of time, assuming that is what the non-solicitation agreement prohibits. If money damages is sought, treble damages (three times the damages) may be sought. Massachusetts General Laws Chapter 93A provides: Any person who engages in the conduct of any trade or commerce and who suffers any loss of money or property, real or personal, as a result of the use or employment by another person who engages in any trade or commerce of an unfair or deceptive act or practice . . . may, under like conditions and subject to like defenses, bring a civil action . . . . Chapters 93A and 151, the overtime statute, allow for treble damages. Additionally, for non-payment of wages, an employee may recover double damages, plus the costs of the suit, including reasonable attorney’s fees. The remedies available when a former employee violates a non-solicitation agreement in Massachusetts are powerful tools to address unfair competition. These, however, should not be a last resort as they are time consuming, and may disrupt the normal course of business.
Alternatives to Non-Solicitation Agreements
Generally speaking, every employee in Massachusetts is free to target prior and existing customers or clients of their former employer when they start work with a new company. Under Massachusetts law, such an employee does not breach a covenant not to solicit or otherwise get into trouble by soliciting business from those customers or clients that they previously serviced on behalf of their former employer. An employee is also generally free to solicit former co-workers to join them in their new job.
Therefore, many Massachusetts employers have formed the view that non-solicitation agreements have limited value in some cases and may not be the right fit for their companies and their specific circumstances. There are a number of alternative agreements and steps that a Massachusetts employer might consider in order to achieve the same business goal, and some of these are discussed below.
With respect to a company’s customer or client relationships, in some cases it may be more effective to enter into customer non-competition agreements rather than non-solicitation agreements. A customer non-competition agreement directly prohibits the customer from using any of the employees or independent contractors who serviced them while they were working for your company when they began working for your competitor.
A customer non-competition agreement essentially provides enhanced protections over and above any typical non-compete agreements by not only prohibiting the employee from targeting the customer or client, but also by prohibiting the customer from continuing to do business with the employee. Some Massachusetts employers will enter into customer non-competition agreements as well as non-solicitation agreements in order to better protect their business.
If your goal is to protect a trade secret or other confidential information or intellectual property , if appropriate, you should use the non-disclosure agreement ("NDA"), perhaps combined with other proactive steps that you take. You might require a NDA in order to have the employees you hire on your behalf sign an effective assignment of any intellectual property that they may happen to develop while working for your company in the future. You might also take other proactive steps that set your company apart from its competitors so that the business is harder to imitate and therefore less appealing to a competing company looking to hire your employees. For example, you might improve other areas of your company that are commonly weak amongst small and mid-sized firms, such as innovating product development, bolstering your cyber security and information technology protocols, enhancing your organizational structure and processes, and cultivating a healthy workplace culture and an effective employee training and development program.
If your employees are likely to join a competing company, you might want to consider asking them to produce a customized list of customers and/or potential customers (in some cases called a "target list") whom the sales force would like to approach while leaving their current employment and join the new company. The original idea behind using a target list was in part to persuade the new company to agree not to target these customers or potential customers during the first six months of a new employee’s employment with them. Many companies have continued to use target lists to protect themselves even though the 2018 non-compete act renders these agreements largely ineffective.