Right from the Start – Non Solicitation Agreements
This focuses on Non-Solicitation Agreements, a more narrow method of keeping other companies from luring employees or clients away.
In the second year of your burgeoning IT business, you have 5 employees. You land a project that requires a temporary workforce of 10 employees. A staffing company offers to provide workers, but a clause in the contract prohibits you from soliciting any of the temporary staff for 2 years. Should you sign?
In its third year, your company competes for a project requiring onsite work. You plan to embed your team, but are concerned that you risk losing the contract if you muddy negotiations with a requirement that the client not solicit your employees. How do you address the issue?
A non-solicitation clause is a normative approach to both situations. Non-solicitation clauses are a common method for setting boundaries with staffing companies, consultants, and trainers.
A non-solicitation agreement with another company may prohibit luring employees. The strictest agreements prohibit all contact, which has led to litigation about whether purely social interaction violates the clause. Additionally, employees may be prohibited from hiring other employees away.
Other non-solicitation agreements prohibit luring away customers. Companies have agreed that, as employees move between companies, each will not solicit the clients previously serviced by the employee for the other company. In the alternative, the non-solicitation agreements may be directly between employer and employee (often in lieu of a non-competition agreement). Those agreements may be narrow (e.g. employee may not solicit clients for whom employee was account manager) or broad (e.g. employee may not solicit any client on company’s client list). The more broad the provision, the more likely it will be scrutinized by the court.
Agreements to limit competition, disclosure or solicitation are, by their nature, restrictions on trade. Iowa courts have long held that any restraint of trade is strictly construed against the one seeking to restrain another from pursuing employment or business pursuits. As one example, Iowa Courts specifically distinguished “selling" and “solicitation" based on who initiated the transaction.
As you consider non-solicitations agreements, consider:
- Is non solicitation good for your business?
- Is it good for the industry in general?
- What time limit should apply?
- What geographic limit should apply?
- Is the agreement limited to a certain type of client?
- Is it limited to a certain type of employee?
- Will it affect your ability to recruit and retain employees?
- Is it fair?