When Should a Business Use a Non-Compete or Non-Solicitation Agreement with Employees?

When Should a Business Use a Non-Compete or Non-Solicitation Agreement with Employees?

There are several types of employment agreements that can benefit an employer. Non-solicitation and non-compete agreements can prevent employees from “taking” clients with them when employees leave the company. Any company that would lose revenue if an employee convinced clients to leave with the employee should consider making non-compete and non-solicitation agreements as standard employee agreements.

What Is the Difference Between a Non-Compete and Non-Solicitation Agreement?

Both types of employment agreements can prevent an employee from “taking” clients from an employer. However, the agreements are slightly different in how the employee is restricted from attempting to take clients.

Non-Compete Agreements

A non-compete agreement prevents a former employee from competing with an employer. In most cases, the non-compete agreement is for a specific period and covers a specific geographic location.

Non-Solicitation Agreements

A non-solicitation agreement is less restrictive than a non-compete agreement. A non-solicitation merely prevents an employee from soliciting the employer’s clients to follow the employee to a new company. Unlike a non-compete agreement, the employee can begin working in the same industry immediately. The job can be in the same geographic location.

Enforcing Non-Solicitation and Non-Compete Agreements

In many cases, courts view non-solicitation agreements more favorably. The agreements do not prevent a former employee from earning a living in an industry where the employee has experience and in an area where the employee may have resided for a long time.

However, non-compete agreements are more restrictive. A former employee may need to move to find another job in the same field. If the former employee wants to remain living in the area, the employee would need to change careers.

Courts carefully review these agreements to determine if they are fair to the employee. If the agreement is overly restrictive or inequitable, the court could void parts of the agreement or the entire agreement. Employers must be cautious when drafting these employment agreements. It is best to seek legal advice to ensure the agreement will stand up in court while protecting the company’s best interests.

Four Reasons Why Your Company Should Use These Agreements

There are many reasons why a business owner would want to use non-compete and non-solicitation agreements. Four benefits of adopting a non-compete or non-solicitation agreement into your standard employment contracts include:

• Increase the Company’s Value – A prospective buyer will want to ensure that the company’s client list is protected. If there is a chance that employees could leave with the client list, the purchaser may lower the price or walk away from the purchase.
• Protect Customer Relations – Client relationships are essential for the success of a small business. A small business cannot afford to lose clients. The owner may not prevent some clients from leaving, but he can prevent an employee from actively pursuing the clients or competing against the business within the clients’ area.
• Discourage Competitors from Hiring Employees – Courts may void agreements if the sole purpose of the agreement is to stop competition or prevent a former employee from gaining employment. However, suppose the business is protecting its confidential information or customer relationships. In that case, the agreements may serve as a deterrent for other businesses hiring an employee merely to obtain your secrets and customer list.
• Clarify Employee Expectations – A non-solicitation or non-compete agreement clearly defines who “owns” the client relationships fostered by an employee. There is no doubt for the employee that leaving the company means leaving the clients.

These are just a handful of reasons why your company may need to use non-compete and non-solicitation agreements. Talk to a lawyer to discuss specifics related to your company.

Contact Our Coral Springs Business Law Attorney for Help with Business Matters

Attorney Matthew Fornaro handles all types of business matters, including employment agreements, business litigation, business formation, and much more. Call 954-324-3651 or contact us online to schedule an appointment with a Coral Springs business law attorney.