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 can also help protect your employer brand. But there’s another document you should seriously consider: a non-solicitation clause.
Depending on your industry, a non-solicitation clause can seriously protect your company after a layoff by making sure that the outgoing staffers cannot take your clients with them to their next company, which can, in turn, get your business back on track to meet its goals.
To help with this, we’ve created this brief guide to go over what a non-solicitation clause is, why it’s important, and - most importantly - a sample clause that you can download and customize for your organization (make sure to go over the clause with your legal team before use).
Let’s get started.
What Is a Non-Solicitation Clause?
Put simply, a non-solicitation clause is a contract between an employer and an exiting employee that states that the employee will not solicit the company’s clients for their own gain or for the gain of their next employer.
Some non-solicitation clauses can also state that the exiting employee will not solicit other works from the organization, too, meaning that they will not try to take other employees with them when they exit.
All of this really depends on your organization, what you need to cover to keep your business protected, and other things. As always, make sure you work closely with your legal team when handling any sort of contract or reduction event in general to make sure you are complying with all local, state, and federal laws.
It’s also important to note that a non-solicitation clause can be offered to employees at any point - not just when the employment is going to be terminated. You could have employees sign a clause like this when they first start working at your organization, for example. Again, it largely depends on your corporate culture.
When Are Non-Solicitation Clauses Typically Used?
While there are numerous reasons why you’d want to implement a non-solicitation clause, some organizations use them more heavily than others.
The main use for a non-solicitation clause is to keep your client base in tact when someone leaves your organization, meaning that businesses that focus heavily on sales (where holding accounts is important) are much more likely to use one of these clauses than other organizations that, say, manufacture goods.
That’s not to say that these organizations do not use them - it’s just a bit more rare.
“Even if there are many customers for a company’s products, it might want a non-solicitation agreement if it sells something that isn’t unique and competes primarily on price,” reports NOLO.
“In this situation, an employee who knows the company’s pricing schedule has a unique advantage in soliciting customers, because he or she knows exactly how sweet the offer has to be to woo customers away.”
NOLO goes on to say that it also matters what state you operate in. For example, in California, non-solicitation clauses are 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. However, most other states do enforce non-solicitation agreements when it comes to clients.
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 firm’s business they can take with them when they leave.
Also, if the agreement makes it too difficult for an employee to make a living after leaving the organization, it might be deemed unenforceable. In other words, organizations shouldn’t try to kneecap an employee’s career simply because they were let go (or chose to leave) an organization.
“Although non-compete clauses may harm your future career opportunities, a non-solicit limits what you can do at a future employer,” reports Dave Greenbaum from Lifehacker.
“These clauses are more enforceable because you aren't being told you can't work in your chosen profession. Sometimes these clauses say you cannot hire a former coworker after you leave the company, but the clauses sometimes do not allow you to contact former customers either.”
With that said, what do you have to consider when making an agreement?
Tips For Crafting a Great Non-Solicitation Clause
When it comes to writing the actual agreement, you need to make sure that you have an actual business reason that makes logical sense. Otherwise, the agreement may not be enforceable by law.
What does that mean?
Well, in short, you can’t expect your non-solicitation clause to be enforceable if you do not have a valid reason for using one. If you make an employee sign an agreement to protect a 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 list is actually a customer list that you’ve crafted and have spent time, money, and energy on to create. Your customer list cannot be a list of prospects you’ve downloaded from a database because this information is readily available online to anyone who wishes to find it.
This can be a bit confusing, but really it boils down to your customer list being your customer list. Here’s NOLO again:
“The customer list must be worth protecting. If the purpose of a non-solicitation agreement is to protect the company’s customer list, the company must have spent time, energy, and money establishing its client database – and it must contain information that isn’t readily available to the general public. If anyone could figure out who a company’s customers or clients are just by looking in the phone book, a court probably won’t protect the customer list.”
This whole section basically means that you need a valid reason to use a non-solicitation agreement. If you do not have a valid reason, you cannot expect the agreement to hold up in court. Again, this is where legal counsel comes in. Work closely with your legal team to make sure 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.
What Your Non-Solicitation Clause Doesn’t Protect
There are obviously things that your agreement will not be able to stop. Again, these are common sense issues.
For example, if people leave your organization voluntarily to follow a co-worker to another organization, a non-compete clause will not matter because those individuals chose - without being solicited - to leave.
The same can be said for your clients and customers. If they see that their favorite sales rep is gone, they can choose to move to the firm the employee is now working for as long as they are not directly solicited by that employee.
This all comes to down whether or not the customers or employees are leaving because they were prompted by the exiting employee to do so. If they weren’t, there’s not much to be done. After all, customers can choose who they do business with, an internal policy at your organization isn’t going to stop them. The same can be said for the retained employees who jump ship. Unless these groups are pressured or pushed by the ex-employee, it’s out of your control.
Non-Solicitation Clause: The Takeaways
When it comes to offboarding talent, a non-solicitation clause can benefit your company by making sure that the person leaving will not solicit your clients into moving to the competing firm.
There are different rules and regulations regarding non-solicitation agreements across the US. 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 you have a good, logical business reason to use one. This means that your customer list has to be of value or you are trying to protect trade secrets or other sensitive information from your competitors.
You must also understand that non-solicitation agreements do not protect you from customers, employees, or clients jumping to a competitor even if they do so because an ex-staff member works there. As long as your ex-employee isn’t pushing them to the competitor, they are free to do what they want.
Want to learn more about non-solicitation clauses?