Non-solicitation: Everything you need to know
A non-solicitation agreement is usually signed by top-level executives, managers, and employees of any business. It protects the company's information while ensuring consumer loyalty to the business rather than the people associated with the business. It is a document or a clause within a document designed to protect the clients as well as employees of an organization.
Losing one's employees or clients due to creative differences can be financially stressful for any organization. Non-solicitation basically helps in ensuring that a former employee or client wouldn't try to steal your ideas or current clients after parting with the company. This helps in steering clear of any threat that a competitor could pose because of leaked information.
A non-solicitation agreement is a safety net for any organization. It helps in canceling out any potential threat that firing an employee might pose in the future. It helps the organization feel secure and, in turn, helps in making decisions without the fear of any information getting leaked.
- Where is a non-solicitation agreement used?
- When is a non-solicitation agreement signed?
- What makes a non-solicitation agreement enforceable?
- What must a non-solicitation agreement include?
- Why is non-solicitation important?
- A few more examples explained through case studies
A non-solicitation agreement is a contract by which an employee is bound by the law not to solicit a company's clients, customers, or employees for his or her own benefit. Neither can the employee do any solicitation for a competitor of the previous employer after leaving the company. Any business owner needs to know a few things about the same in order to use it and protect themselves from any wrongdoings. Here is everything you need to know about the agreement:
1. Where is a non-solicitation agreement used?
A non-solicitation agreement can be used by all organizations. Businesses with a less diverse consumer pool must be more careful. For example, a business selling something as simple as car parts can have an ex-employee reveal its pricing schedule in front of a rival. This could potentially lead to the business closing down because the rival would know exactly what tactics you use for marketing.
2. When is a non-solicitation agreement signed?
This type of agreement can be presented to you before joining the firm while working at the firm or while parting ways with the firm.
3. What makes a non-solicitation agreement enforceable?
In order for the agreement to be enforceable, the employer must make sure that,
- The employer has a valid reason for enforcing this contract.
- The employer's customer base is not readily available to the public.
- Employees and consumers are given a choice to leave at their own will.
- The contract is not ambiguous.
4. What must a non-solicitation agreement include?
There are 3 things that need to be included in a typical non-solicitation agreement:
- The contract must mention how long the employee needs to abide by the agreement, taking their term of employment into consideration and in what geographical area it is applicable.
- Before signing the agreement, it is necessary for the employee to give a statement stating that he/she has received sufficient consideration.
- Also, the employee needs to give a statement that he/she won't violate the agreement.
Why is non-solicitation important?
Non-solicitation agreements are tools that are routinely used by organizations to minimize the value of tangible as well as intangible assets. Let use an example through the film industry.
Imagine a scenario where a creative director hires a renowned set designer to work with, who gets a substantial amount of investors or new clients for the agency. After a certain period, they start having creative differences, because of which the assistant decides to part ways with the agency.
In this situation, a non-solicitation agreement can help in convincing the set designer to stay till the end of that project. It is a way to keep the clients and your ideas safe and continue with the project with a minor setback.
Now, in this situation, if the set designer wouldn't have signed the agreement, he/she could've gone to a rival company with the same clients as well as ideas without any legal repercussion. It can be requested either before getting into business with the employee or client or after the business relationship comes to an end.
In the movie Jerry Maguire, Tom Cruise's character gets fired from a sports agency. He tries to get his co-worker and clients to leave along with him. He successfully gets just one client, Rod Tidwell, to leave with him. Now, the number is small, but every client matters for a business.
In this situation, if Jerry Maguire would've signed a non-solicitation agreement while joining, he would've had to face major legal consequences for pulling such a stunt. In real life, if he would've tried to poach a client and a partner after signing the agreement, his agency could've sued him for the same.
A few more examples explained through case studies
Netflix vs. Fox Studios
In 2016, Fox Studios and Netflix made headlines because of a poaching battle between the two. Netflix had allegedly poached Fox Studios' employees. They are currently the promotions and drama programming development bigwigs at Netflix, Marco Waltenberg and Tara Flynn.
Now, in this situation, the employees had signed an employment contract with Fox Studios. Due to this, they could fight a legal fight. At the same time, a non-solicitation agreement would've helped in protecting actors and other staff working at Fox Studios from leaving with them.
Tech CEOs
In 2015, the world's topmost companies, Apple, Google, Intel, and Adobe, had to face a lawsuit due to a secret agreement between the companies. They had to pay $415 million for having a role in this pact. This was supposed to be a no-poach pact wherein the CEOs of the companies had amicably decided not to poach each other's employees.
This arrangement was perfect for them, but their employees were infuriated. They felt that these companies had restricted their professional growth process. Such a pact not only restricted their ability to grow in Information technology but also stifled their attempts to earn higher salaries.
Now, this pact was a by-product of the insecurity of the CEOs over their confidential data and employee reliability. They didn't want any information to get leaked through their employees. A non-solicitation agreement sees to it that no employee can leak information about their former company. Such a clause or document helps the company to feel secure about letting their employees go.
No matter what kind of business you are starting, it is always better to be safe than sorry. A non-solicitation is a metaphorical shell that can protect a company's valuable information as well as clientele. Prevention is always better than cure and you don't want to lose out on an opportunity to turn the vision for your business into a reality because of a third person. Just like you need the support of your peers in life, you need the support of the law when it comes to business.