A nonsolicitation agreement is a type of noncompete agreement that typically restricts an individual (usually a former employee) from soliciting either employees or customers of the business.
Why do employers require nonsolicitation agreements?
Good employees are difficult to find and develop. Thus, after having spent time and resources training a particular employee, a company will have a natural interest to prevent an employee who leaves from soliciting another valuable employee to join the new company. To this end, many companies require managers and professionals to sign nonsolicitation agreement to prevent this type of scenario from happening.
Similarly, an employer might also have an inclination to prevent a former employee from soliciting customers, drawing them away from the business. This situation commonly occurs in sales and professional practices, with both clients and patients.
What does a nonsolicitation agreement do?
A nonsolicitation agreement can prevent many of these scenarios from happening – at least legally. For example, a nonsolicitation agreement might specifically state that an employee “agrees not to directly or indirectly, alone or on behalf of another, provide services to, call upon, solicit, sell, divert, take away, deliver to, accept business or orders, or otherwise deal with the past, present, or prospective customers of the other party to the agreement, or assist anyone else in doing so.” Such a clause would prevent an employee from taking valuable companies with them upon leaving a company.
The governing law of nonsolicit agreements is highly state-specific and can get quite complicated. In Minnesota, in order for any noncompete agreement to be enforceable it must:
- serve a legitimate employer interest; and
- be reasonable in scope, duration, and geography.
- be supported by adequate legal consideration;
Restrictions on solicitation of customers and employees have been deemed to serve the legitimate purpose of protecting the goodwill of the employer’s business and preventing a former employee from unfairly using their former position to the detriment of the employer.
Drawbacks of nonsolicitation agreements
However, an employer should always bear in mind that any nonsolicitation agreement, like all noncompete agreements, are generally disfavored in law and must be reasonable in terms of both time and scope. In terms of scope and geography, Minnesota courts have gone so far as to uphold nonsolicitation agreements that lack any territorial limit whatsoever, deeming that the restriction to former clients renders the agreement sufficiently narrow. See Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796, 800 (Minn. App. 1993). While there are few Minnesota cases dealing solely with the issue of time on a nonsolicitation agreement, Minnesota courts almost always hold that a one (1) year non-compete (remember a non-solicitation agreement is a type of non-compete agreement) agreement is reasonable in duration. Two (2) year non-compete agreements are sometimes found reasonable; although some Minnesota courts have struck down such agreements. Three (3) year non-compete agreements are typically deemed unreasonable under by Minnesota courts. These are general guidelines and should not be used to guide your particular situation. Bear in mind, however, that non-solicitation agreements, in general, have been seen as far more reasonable than many other forms of non-compete agreements. Thus, it is likely that a court would enforce a two-year non-solicitation agreement restricted to former clients. Ultimately, the court must decide what is reasonable and has the power to shorten or “blue pencil” the agreement as discussed below.
A nonsolicitation agreement requires consideration; if the agreement is executed after an employee has begun working, it must be supported by some independent consideration. Properly structured at the beginning of an employment relationship, employers should require the nonsolicitation agreement be signed as a condition of employment prior to the employee’s first day of work. If the employee has already started working, the employer will likely need to provide the employee with something beyond the mere continuation of employment in order for the agreement to be enforceable. For example, the employer could provide the employee with a raise, promotion, lump-sum bonus, incentive compensation, access to trade secrets, or any other significant benefit.
Finally, one last thing to keep in mind is that even if the court determines that a Minnesota noncompete agreement is unreasonable or overly broad as drafted, the court has the power to “blue pencil” or narrow the agreement so as to make it reasonable. This is called the “blue pencil doctrine”. Thus, Minnesota courts have wide latitude to enforce some or all provisions in a Minnesota noncompete agreement to the extent necessary to protect the employer’s legitimate interests. For example, an otherwise completely valid nonsolicitation agreement that is rendered unenforceable due to a 20 year time period might be reduced to a 2-year time period pursuant to the courts “blue pencil” power. Such an agreement would thereafter be fully enforceable. Dealing with the specifics of a nonsolicitation agreement can get quite complicated; often it is an employer’s best interest to consult an attorney beforehand.
Written by Sean Taylor