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What You Should Know About Non-Solicitation Restrictions

Nov 16, 2017

By Craig T. Watrous:craig.jpg

We’ve written a number of blog posts and articles on the enforceability of non-compete agreements in Colorado.  We’re often asked what a non-solicitation agreement is and how it’s different from a non-compete.  Generally speaking, a non-solicitation agreement (or provision) is a restriction on asking to hire an employee or trying to engage a customer or client of the other party.  

Non-solicitation restrictions are generally enforceable in Colorado but always subject to judicial review and scrutiny. The main areas that courts focus their review on are the scope, geography, and time period of the restrictions.

While sometimes non-solicitation restrictions are drafted in standalone agreements, they are usually included in non-disclosure agreements, independent contractor agreements, master service agreements, professional service agreements, partnership agreements, LLC operating agreements, non-competes, and M&A transactions. 

 Here are some examples of non-solicitation provisions:

I. In an LLC Operating Agreement:

a.            Member will not directly or indirectly solicit, entice, induce or attempt to induce or influence any employee, independent contractor, vendor, customer, or supplier of the Company to terminate or alter his, her or its relationship with the Company;

b.           Member will not directly or indirectly, on Member’s own behalf or on behalf of, or in conjunction with, any person, partnership, corporation, or entity, interfere or attempt to interfere with any transaction in which the Company was involved or which was pending during the term of Member’s employment or at the date on which Member’s employment with the Company ends;

c.           Member will not directly or indirectly, on Member’s own behalf or on behalf of, or in conjunction with, any person, partnership, corporation, or entity, solicit in any manner any of the Company’s customers or prospective customers, including, without limitation, soliciting, inducing, or attempting to solicit or to induce any customer or other business relation of the Company to cease doing business with the Company, reduce the amount of business it does with the Company, or in any way interfere with the relationship between any such customer or business relation and the Company, its affiliates, subsidiaries or parents;

II. In an Employment Agreement:

  To protect the Company’s Confidential Information, including, without limitation, Trade Secrets, Employee agrees that during Employee’s employment with the Company, whether full-time or part-time, and for a period of eighteen (18) months after Employee’s last day of employment with the Company, Employee will not without the Company’s prior written consent, directly or indirectly:

           a.         Cause or attempt to cause any employee, agent or contractor of the Company or any Company affiliate to terminate his or her employment, agency or contractor relationship with the Company or any Company affiliate; or interfere or attempt to interfere with the relationship between the Company and any employee, agent or contractor; or attempt to hire any active employee, agent or contractor of the Company or any Company affiliate; or

           b.         Solicit business from or conduct business with any customer or client served by the Company at any point during Employee’s employment with the Company; or solicit business from or conduct any business with any person or entity that was, during Employee’s employment with the Company, solicited or identified as a business prospect by Employee or any other Company employee, agent or consultant; or interfere or attempt to interfere with any transaction, agreement, prospective agreement, business opportunity or business relationship in which the Company or any Company affiliate was involved at any point during Employee’s employment with the Company, in each case provided that Employee became acquainted with such employee, customer, agent or consultant, or other person or entity, or relevant portion of such person’s entity or business, as a result of Employee’s employment with the Company and Employee’s exposure to Confidential Information.

These types of provisions, when well drafted, can help protect a company’s valuable connections like employees, customers and clients. To be enforceable, they need to be carefully drafted so as not to be construed by a court as a non-compete (which are generally void in Colorado).  There isn’t a one size fits boiler plate term that can be cut and pasted into a contract. They must be reasonable, defensible and narrowly tailored. If it’s just a work around of a non-compete, it will be subject to the same restrictions on non-competes (Colo. Rev. Stat. Section 8-2-113).

The company and its attorney need to carefully consider what activities it wants to prevent and what it legally can prevent.  For example, rather than an outright prohibition on contacting and soliciting clients/customers of the company (which may be viewed by a court as a de facto non-compete provision), the company could restrict the solicitation of customer/clients if they would alter the existing business arrangement that the company has with those individuals.  The company may not care (and may not be able to prevent) if an ex-employee contacts company clients/customers and solicits them for products and services that are unrelated to the company’s business.  The more specific and tailored the prohibition, the higher the chance of its enforceability. 

The attorneys at Mallon Lonnquist Morris & Watrous are experienced in mergers and acquisitions, representing both sellers and buyers.  We are also experienced in drafting and enforcing non-competition, non-solicitation and non-disclosure agreements in Colorado.  Please contact us if you would like to speak with us about drafting or enforcing non-solicitations.

Related Posts:

Colorado Non-Competition Agreements

Enforcement of Colorado Non-Compete Agreements Against Executive and Management Personnel

NYT – When the Guy Making Your Sandwich Has a Non-compete Clause

(MLMW is a business, employment and civil litigation law firm. Craig T. Watrous is a partner with MLMW, based in Denver, Colorado. Craig regularly representsmlmw_mark_MD_Transparent.jpg clients on both sides of non-solicitation provisions in transactions and disputes. Craig can be reached at cwatrous@mlmw-law.com or (303) 722-2165)

 



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