Psst Buddy, Want a Job? A Guide to Non-Solicitation Agreements
By: Alice K. Jump and Ariana Zhao
It is a common practice to insert “non-solicitation” clauses in employment contracts and severance arrangements. But what does the term “solicit” really mean? Cracking open our dusty Black’s Law Dictionary, we find the word defined as “to appeal for something, to apply to obtain something, to ask earnestly.” In actuality, the term most frequently appears in criminal statutes relating to prostitution. In the employment context, it usually relates to provisions prohibiting former employees from soliciting the former employer’s customers or employees.
Like other restrictive covenants such as non-competition clauses, the enforceability of non-solicitation agreements in New York is still governed by a case decided over two decades ago, namely, BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), which sets forth that a restrictive covenant is only reasonable if it:
- is no greater than is required for the protection of the legitimate interest of the employer;
- does not impose undue hardship on the employee; and
- is not injurious to the public.
BDO Seidman, 93 N.Y.2d at 388-89. Historically, non-solicitation clauses have been viewed more favorably than outright prohibitions on competition as the employer’s interest in protecting the investment in its employees and customers is easier to define. But every scenario will present some nuances.
Scenario 1: Solicitation of a Customer
An example of a typical non solicit clause that would generally be enforced would provide as follows: “For a period of nine months after termination of employment with the Company, the employee may not solicit clients or customers of the Company with whom the employee did business for one year prior to the termination of employment.” The time period would probably be deemed reasonable and the employer’s interest in protecting a well-defined group of customers most at risk is fairly clear. See e.g., Marsh USA Inc. v Karasaki, No. 08 CIV. 4195 (JGK), 2008 WL 4778239, at **15-6 (S.D.N.Y. Oct. 31, 2008).
Prohibition of solicitation of customers within a specific geographic area, e.g., within one hundred miles of the employer’s place of business, was a traditional way to make the non-solicitation clause more palatable to the courts. Of course, in this digital age geographic boundaries are blurred and customers can come from anywhere, so courts have recognized that a broader geographic range might be enforceable. Kelly v. Evolution Markets, Inc., 626 F. Supp. 2d 364, 373–74 (S.D.N.Y. 2009) (clause prohibiting solicitation of customers anywhere in the world was reasonable when the company showed that its business was conducted “worldwide” via telephone.)
An important factor in analyzing the enforceability of non-solicit clauses is the relationship between the customer and the employee. For example, in cases where the customer came to the employer “only as a result of [the former employee’s] own independent recruitment efforts, which [the employer] neither subsidized nor otherwise financially supported as part of a program of client development,” then a limitation on the employee’s solicitation would not be reasonable. Marsh USA Inc. v Schuhriemen, 183 F. Supp. 3d 529, 534-5 (S.D.N.Y. 2016), amended, No. 16 CIV. 2998, 2016 WL 2731588 (S.D.N.Y. May 3, 2016) (citing BDO Seidman, 690 N.Y.S.2d at 393). Conversely, courts have also thrown out clauses which seek to bar an employee from soliciting or providing services to clients with whom the employee never acquired a relationship through his or her employment. Barton Mines Co., L.L.C. v. Miller, No. 14 CIV. 1003 (MAD/CFH), 2014 WL 4437558, at *5 (N.D.N.Y. Sept. 9, 2014) (citing Brown & Brown, Inc. v. Johnson, 115 A.D.3d 162, 171 (4th Dep’t 2014)).
Scenario 2: Customer Solicitation of Former Employee
Most agreements do not address the question of what happens if the client is the one that ‘solicits’ the former employee. In this scenario, New York courts have found that a non-solicitation agreement may not be enforceable. In B.O. Technology, L.L.C. v. Dray, the former employer sued the employee for accepting a position with one of its customers on the ground that it violated his non-solicitation agreement. 970 N.Y.S.2d 668 (Sup. Ct. Suffolk Cnty. June 27, 2013). In this case, the employee had not reached out to the customer seeking to directly perform work for them, and was instead offered the role. The court found that the defendant did not breach his agreement as he did not exploit the customer relationship established during his employment by attempting to obtain work, or appropriate his former employer’s goodwill. As such, the agreement was deemed to impose an overbroad restriction that did not apply to the case at hand.
Scenario 3: Solicitation of Former Colleagues
Aside from protecting its customer base, a business also has a high interest in keeping talent within its employ. As such, some non-solicitation agreements also contain non-recruitment clauses which prohibit a departing employee from soliciting other employees of the company to separate from their employment. Such provisions often pose greater difficulty in determining what constitutes solicitation as taken at their broadest interpretation, they may suggest that even a casual conversation between coworkers regarding career advice or life changes would be a breach. As such, a non-recruitment provision “that would compel silence in such circumstances would certainly be overly broad, impose undue hardship on the co-worker, and be injurious to the public.” Oliver Wyman, Inc. v Eielson, 282 F. Supp. 3d 684, 695 (S.D.N.Y. 2017).
That said, provisions that are reasonably limited in scope (e.g., limited in duration) and are no broader than necessary to protect the employer’s legitimate interest are permissible. If, for example, the departing employee persuades fellow coworkers to leave, particularly if the employees have access to trade secrets or confidential information, then then employer has a good chance of proving actual harm. Id. at 698.
Conclusion
As with most matters, careful drafting and consideration of the realities of the employer’s actual economic interest will help an employer navigate the fine line between what is reasonable and what is overreach. As for employees, they should be aware of what they are signing or have signed upon separation from an employer and seek advice if the scope of the post-employment restriction is unclear.
This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Partner Alice K. Jump who counsels clients on litigation, alternative dispute resolution and business counseling, with particular emphasis on representing clients in the financial services and real estate industries as well as educational and non-profit institutions. Ms. Jump is admitted to practice law in New York and before the United States District Courts for the Southern and Eastern Districts of New York and the United States Court of Appeals for the Second Circuit.