Non-Solicitation Agreements: What Are They and What Do They Prohibit?
More and more Massachusetts employers have moved away from non-competes as a way of controlling the behavior of departing employees. That is because they are hard and expensive to enforce, especially in light of the new Massachusetts non-compete law (read more about that here). Employers do, however, continue to use non-solicitation agreements to prevent solicitation of current customers and current employees by their departing employees. A recent Massachusetts court case shows how those agreements work and how courts analyze them.
WHAT IS A NON-SOLICITATION AGREEMENT?
Generally, non-solicitation agreements do two things (1) they restrict who you can solicit to be your customer or client and (2) they restrict who you can solicit to work with you. Non-solicitation agreements do not restrict who you can work for. In that sense, they are not non-competes. If you signed a non-solicit agreement, you probably did so at the beginning of your employment.
Say for example you worked for Acme Auto Parts as a parts salesperson. And say you worked with Susie, who was also a parts salesperson. And say as a parts salesperson you had three main clients. If you signed a non-solicit as part of your employment with Acme and you leave to work for a competitor, you will be prevented from (1) soliciting those three clients on behalf of your new employer (2) trying to convince Susie to come work with you at your new employer. You’re free to work for that new employer: you just can’t do those two things. Those prohibitions may, of course, make you much less valuable to your new employer.
I SIGNED A NON-SOLICIT. CAN I ANNOUNCE MY NEW JOB TO MY FORMER CUSTOMERS? OR IS THAT SOLICITING?
Non-solicitation agreements prohibit you from soliciting. As a result, disputes over non-solicitation agreements often center on what conduct amounts to soliciting. Massachusetts courts have routinely held that a simple “announcement” to your former clients of a change in your place of employment and contact information is not, by itself, a “solicitation.” So when does an “announcement’ become a “solicitation”?
This was the precise issue before the court in Fidelity Brokerage Servs., LLC v. Callinan. There, a financial consultant left Fidelity to work for UBS. That employee had signed a non-solicitation agreement that prohibited him from directly or indirectly soliciting customers he worked with as a Fidelity employee. Upon arriving at UBS, the employee created a written list of his Fidelity clients (from memory) and gave that list to his new managers who preceded to find contact information for those clients. That employee then spent four months contacting those former clients by phone to provide them with his new contact information unless the client asked about his departure from Fidelity. If that happened, the employee launched into a full sales pitch as to why UBS is better than Fidelity. According to the court, this was much more than solicitation, even though the client expressed interest in learning more about the employee’s departure, because (1) the employee reached out to the clients personally by phone, (2) he did so for a long period of time (four months), (3) the low level of interest the clients needed to express to get the ‘sales pitch,’ and (4) the fact that the ‘sales pitch,’ was, unmistakably, full-on solicitation and request for meetings. This, according to the court, meant these “client calls were effectively solicitations wrapped in the thin veneer of an announcement” in that they certainly were not intended solely to provide new contact information. As a result, the court issued an order essentially prohibiting the employee from soliciting his former customers.
WHAT IF I DON’T TAKE A WRITTEN CUSTOMER LIST AND I JUST MEMORIZE THE NAMES? DOES THAT MATTER?
No. The employee in Callinan tried this argument. On its face, that argument seems a bit hard to take seriously. Information is either protected or it isn’t, regardless of whether it is in writing or not. Not surprisingly, the court agreed stating: “confidential information … remains confidential when it resides in the memory of a former employee.”
I SIGNED A NON-SOLICITATION AGREEMENT AND I’M LEAVING MY JOB. WHAT SHOULD I DO?
The law is pretty clear that you can make an announcement to your former clients with your new position and contact information. Best not to do that on the phone, best to do it once, and best not to do much more than provide the new contact information. After all, if they want to follow you, all they’ll need is your contact information.
If you are a Massachusetts employee that has questions regarding the enforceability of a non-solicit agreement contact us today.