Understanding the Difference Between Non-Compete and Non-Solicitation Agreements
When bringing new talent into your company, setting clear boundaries on post-employment conduct can protect your business from potential disruption. Two common clauses often included in employment agreements are non-compete and non-solicitation provisions. While both aim to protect business interests, they differ significantly in scope and impact.
What is a Non-Compete Agreement?
A non-compete agreement restricts a former employee from entering into or starting a business that competes with your company. It doesn’t matter whether they work with your current clients or not—the agreement prevents them from offering similar services or products within a defined geographic area and timeframe.
Example in Action
If your company hires a graphic designer to work on projects for a client in the cereal industry, you might ask them not to do any graphic design work for cereal companies for one year after the contract ends. They’re still free to work with companies in unrelated industries like footwear or coffee, just not cereal brands.
This type of clause offers broader protection, but it also faces more legal scrutiny and can be harder to enforce depending on the state.
How a Non-Solicitation Clause Works
Non-solicitation agreements are more focused. Rather than preventing competition altogether, they simply stop former employees from poaching your existing relationships—whether that’s customers, clients, vendors, or even other employees.
Practical Application
Using the same graphic designer example, a non-solicitation clause would allow them to work with cereal companies in general, just not with the specific client they worked with during their time at your company. They can compete in the industry, but they can’t take your clients or staff with them.
This narrower focus makes non-solicitation clauses more likely to hold up in court, especially when drafted properly.
Timing and Legal Requirements Matter
If you’re planning to include a non-compete or non-solicitation clause, timing is key. These restrictions should be communicated upfront—ideally when the job offer is made. If you wait until after the offer is accepted, you’ll usually need to offer something extra in return, such as a bonus or additional benefits. This legal requirement is known as consideration.
In other words, for any contract to be valid, both sides must receive value. If you’re asking an employee to take on additional restrictions after the fact, they’re legally entitled to receive something in return.
Takeaway for Business Owners
These types of agreements can be valuable tools for protecting your client relationships, trade secrets, and overall business integrity. Just make sure you:
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Decide which type of clause fits your goals: broad protection vs. targeted restrictions.
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Communicate clearly during the hiring process.
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Provide consideration if you introduce these agreements post-hire.
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Follow your state’s laws regarding enforceability.
Drafting these agreements with the help of legal counsel can help avoid common pitfalls that lead to disputes.
For more insights on protecting your business from legal trouble, resources are available at AaronHall.com/free.
Video Transcript
What These Clauses Aim to Protect
Business owners often face a critical distinction when drafting employment agreements, non-compete versus non-solicitation provisions. While both serve to protect a company’s interests, they function in very different ways. A non-compete restricts a former employee from engaging in competitive business activities regardless of client or customer overlap.
Allowing Competition Without Poaching
A non-solicitation by contrast permits competition, but prohibits interference with existing relationships such as poaching clients, employees, or vendors. In this segment, we’ll examine how each restriction operates in practice. The legal requirements for enforceability and the role of consideration when implementing these agreements after a job offer has already been accepted.
Broad Prohibitions of a Non-Compete
Let’s talk about non-compete provisions versus non-solicitation provisions. A non-compete says, “You can’t compete anywhere. It doesn’t matter who you are working with.”
Narrow Restrictions of a Non-Solicitation
A non-solicitation is more narrow. The non-solicitation says, “Hey, you can go ahead and compete. You just can’t solicit or do business with the people we currently do business with, like our employees or our customers. You can’t interfere with that. Go ahead and compete with us. That is fine.” Says the non-solicitation provision. But you can’t interfere with our relationships. You can’t do business with the same people we are doing business with.
Key Difference in Relationships
So a non-compete prohibits competition in general. A non-solicitation merely prohibits entering into relationships that you already have a relationship with.
Industry-Specific Limitations
So like, you might say, for example, “Hey graphic designer, we are going to hire you on a project with one of our favorite clients, but you have to agree that you are not going to go out, and after you leave our relationship, you are not going to go out and market your services to people in that same industry as our major client.”
A Cereal Company Example
So let’s say, for example, our client is a cereal company. We might ask the graphic designer, “You can do business with shoe companies, coffee companies, and whatever product or service you want, but not cereal. You can’t do graphic design for cereal companies for one year.” For example.
Preserving Customer Relationships
So that would be how a non-compete might be used in a relationship. Whereas a non-solicitation would say, “You can’t have a relationship with our customer. You can’t cut us out of the deal.”
When You Can Introduce These Agreements
So sometimes business owners, like yourself, want to have non-compete agreements with the employees or non-solicitation agreements with the employees. In many states, that is allowed. But generally speaking, you have to notify them of that at the time you make the job offer to them.
Consideration After a Job Offer
If they have already accepted the job offer, and now you want them to sign a non-compete or a non-solicitation agreement, you typically have to pay them something for that. You can’t just force them to sign it. They have to get something out of the deal. That is called Consideration or Independent Consideration. In other words, in order for a contract to be valid, both sides have to get something out of the deal.
Free Legal Resources
Now, if you would like to know more about how to avoid trouble like this, I have a free resource at AaronHall.com/free. I provide information for business owners of small to mid sized companies on how to avoid common legal problems. That includes a PDF. It includes videos talking about important issues.
About the Presenter
I am Aaron Hall. I am an attorney for business owners and entrepreneurial companies. If you would like, subscribe to this channel so you can get more educational content like this.