Navigating Non-Solicitation Agreements in New York

Defining a Non-Solicitation Agreement

Non-solicitation agreements, or non-solicit agreements, are contracts between an employer and employee or an independent contractor in which the "inducement to break a contract with a third party" is restricted. Smith v. Baystate Med Center, Inc., 1999 WL 617559, at *2 (Mass. Super.) (quoting Black’s Law Dictionary 1148 (6th ed. 1990)). Under a non-solicitation agreement, an employee is prevented from contacting a customer or client of the employer for the purpose of "soliciting" that customer or client’s business. Non-solicitation agreements can protect an employer from "the poaching of his or her customers by a former employee for a period of time after the termination of that employment." McCluskey v. Manfredi & Assocs., 781 N.Y.S.2d 851 , 852 (App. Div. 2004). Solicitations can also include the fromers’ attempts to "ferret out and spirit[] away other employees who have provided valuable services to the company." Id.
Courts will generally uphold valid non-solicitation agreements so long as they are reasonable in time and geography. An agreement is not reasonable if it "goes beyond protection [to the] customer relationships of the ex-employer and . . . prohibits solicitation of past customers who have not become the new employer’s customers." Davidson v. MDM Group, Inc., 770 F. Supp. 2d 495, 510 (E.D.N.Y. 2011). The courts must be wary of non-solicitation agreements that are nothing more than an attempt to stifle legitimate competition. See Colt Indus. Operating Corp. v. Sisk, 53 N.Y.2d 778, 778 (N.Y. 1981) (holding that a non-solicitation agreement was overbroad and an unlawful restraint on trade as it created "an unqualified bar on competition for an indefinite time period"). Non-solicitation agreements drafted by employers carefully to survive judicial scrutiny can be an important tool to protect trade secrets, customer relationships, and goodwill.

Essential Components of Non-Solicitation Agreements

The limitations on solicitation generally encompass restrictions on the solicitation of employees, customers or both. The contractual language under each type of clause is sufficiently broad to cover many forms of indirect solicitation, except for the act of mere competition (i.e. endeavors with the unprotected purpose of engaging and servicing clients, or employees through lawful means). Non-solicitation provisions are common in restrictive covenants and typically preclude employees from soliciting clients, customers, suppliers and other employees.
As a matter of standard practice, almost all non-solicitation agreements will include one of the two types of restraints, if not both. Accordingly, in order for a non-solicitation agreement to be enforceable under New York law, it must meet the following criteria: (i) protect the legitimate interests of the employer, (ii) be no greater than is required for the employer’s protection, and (iii) not impose an undue hardship on the employee.

Legal Guidelines in New York

The legal landscape regarding non-solicitation agreements in New York is nuanced, carefully balanced between the protectable interests of employers and the rights of employees. Generally speaking, these agreements can be enforced pursuant to the general standards applicable to contracts. Under New York law, an agreement is enforceable if it is reasonable as to time and scope.
To wit, in Ashland Management, Inc. v. Janien the New York Court of Appeals set forth the following test for restrictive covenants: [A] restrictive covenant will be enforced if the employer demonstrates that it is "necessary to protect" its legitimate interests and that it is no greater than is required for adequate protection and is not harmful to the public interest. In determining whether an agreement is overbroad, the temporal and geographic restrictions must be considered separately.
Courts interpreting restrictive covenants consistently look to determine the "interests" being protected by the employer. The two key interests are: (1) the solicitation of the former employer’s customers; and (2) the solicitation of the employer’s employees.
Accordingly, while a non-solicitation agreement prohibiting a former employee from soliciting former customers may be upheld, an agreement that prohibits the employee from soliciting prospective customers may be found overbroad if the agreement has no temporal limit.
A non-solicitation agreement barring the former employee from soliciting former employees may also be upheld, but may be rendered unenforceable if it is deemed to bar all forms of solicitation, regardless of whether the solicitations are for protected or unprotected activities. In such an instance, the court might find the agreement not only prohibits legitimate solicitation of employees who are not being recruited for protected activities, but also employee recruitment for internal protected activities and thus overbroad.
Key distinctions have emerged based upon the type of employment situation and the ultimate industry at issue. For example, courts have interpreted non-solicitation clauses broadly in the financial services field, while making narrower constructions in the real estate sales and broker industries.
For example, an unpublished Appellate Division opinion involving real estate brokers concluded that it was unreasonable to prohibit a real estate agent from soliciting potential clients that were not previously known to her but were simply in her neighborhood. Likewise, the United States District Court for the Southern District of New York held it was unreasonable to prohibit a security officer from soliciting other security officers.

Issues with Enforceability

When seeking to enforce a non-solicitation agreement, there are several issues which will be considered by the court in deciding its enforceability. While the same four-factor inquiry applies to non-competition and non-solicitation agreements, because a non-solicitation agreement does not bar a former employee from working for anybody, courts have more latitude in finding them to be reasonable. Non-solicitation agreements generally must only limit conduct to a small geographic area.
Once a party challenging a non-solicitation covenant demonstrates that there is a genuine issue of fact as to the reasonableness of the restrictions imposed, a court will require the employer to establish the reasonableness of the restrictions by a preponderance of the evidence. There are two particular areas where non-solicit agreements are often challenged.
First, is the restriction on the solicitation of former employees. This is often the easiest portion to challenge. The reasoning behind this challenge is that the covenant imposes an indefinite bar on hiring future employees. If one uses common sense, it would seem unfair for an employee to leave and join a new venture and be barred from hiring a friend who might want to work with them. Without the ability to hire friends, an employee seeking greener pastures is effectively handcuffed to their former employer – making employment opportunities more dangerous.
Accordingly, a non-solicitation restriction on the hiring of former employees is likely to be found invalid unless there is a substantial showing of some legitimate interest by that employer.
The second portion of a non-solicitation provision that can be challenged is a restriction on the solicitation of clients. Again, much like the non-compete agreement, a plaintiff will have to show that there is a legitimate interest that is being protected by the restriction. However, the scope of the restriction will be more limited. A former employee will not be precluded from all contacts with former clients, but only from contact of those clients with which the former employee had a relationship during the course of their employment.
Further, a client non-solicit agreement between a company and a client will not be enforceable absent two things: (1) a strong likelihood that the client will leave if contacted by the former employee; and (2) an inability to show that the employer has terminated services to that client.
Non-solicitation agreements are restrictive in nature and while they are more likely to be upheld by the courts than non-compete agreements, a determination of if a clause is overly harsh or excessive is ultimately a question of law for the court.

Perspectives of the Employer and Employee

Understanding Non-Solicitation Agreements in New York
Non-solicitation agreements can impact both the employer and employee in a New York workplace. For employers, these agreements offer a degree of protection for their business by preventing current and former employees from enticing clients, customers, and employees towards a new employer or business. At the same time, non-solicitation agreements can serve as a deterrent for employees reluctant to leave a company for fear that their previous deterrent will either entice them to return to their former business, stop them from recruiting employees to their new company, or prevent them from working with former clients and customers.
From the employer’s perspective, non-solicitation agreements can be essential in preventing loss of business to competitors, particularly large firms that can afford to pay higher salaries and compete for top talent from other companies . With a non-solicitation agreement in place, there is a decreased likelihood that an employee will steal clients and customers, which can help employers remain competitive with other businesses within their industry.
Many employers will also view non-solicitation agreements as providing benefits among employees who are subject to the agreement. For example, these agreements may:
Finally, although some employers and employees may view non-solicitation agreements as an obstacle, such restrictions can provide benefits for both parties. Ultimately, when each party enters into a non-solicitation agreement with a positive attitude, they may view the agreement as a tool through which they can work together amicably and harmoniously.

Effective Drafting Practices in New York

While New York law permits more flexibility than some states when it comes to non-solicitation agreements, New York courts will only enforce them if they are reasonable. As with any non-compete agreement in New York, it is critical that employers strike the proper balance in their non-solicitation provisions between protecting the business while not unfairly restricting their former employee’s right to earn a livelihood. To these ends, employers should be sure that their non-solicitation covenants contain the following restrictions:
• Duration. New York courts typically find non-solicitation covenants that restrict former employees from soliciting customers/employees for six months to 18 months after termination to be reasonable. While New York courts have previously upheld longer post-termination restrictions (e.g., two to three years), we advise employers to be cautious in seeking anything greater than 18 months unless there is a compelling reason to do so.
• Scope. New York courts generally favor non-solicitation provisions that do not have overly broad geographic restrictions. Therefore, to the extent an agreement restricts a former employee from soliciting customers, the agreement should specify that it only applies to customers that the employee was directly involved with. And, when purchasing an existing business, it’s best to require new employees to sign new non-solicitation agreements that are appropriately tailored to protect the new employer’s legitimately developed business concerns.

Implications of Breaching Agreements

Parties that violate a non-solicitation agreement – or any other restraint in the employment agreement – do not have immunity from the law if they seek to engage in the prohibited conduct. If a party commits an action prohibited by a non-solicitation agreement, it opens the door to legal and financial consequences. A party, such as an employee, that violates a non-solicitation agreement can be sued for breach of the non-solicitation agreement and/or any other employment contract, such as a nondisclosure agreement. If there is a non-compete agreement in effect, the employee who violates the non-solicitation agreement may be liable for damages under the non-compete agreement as well.
An employee who violates a non-solicitation agreement could face serious consequences. The party that suffers damages from the violation can seek money damages for the full extent of their injuries. If the employment contract is governed by New York law, there may be punitive damages or liquidated damages cap on the amount due to the injured party, or there may be a jury cap. Any of the potential damages awards are likely to be substantial if the breach is egregious. This can leave the employee to the mercy of the court, as they can face enormous financial penalties for violating the agreement.
Either party to a non-solicitation agreement in New York State could find themselves involved in litigation due to a violation of the agreement. If an employee seeks to induce a client away from his former employer, that former employer could take the employee to court for the violation. If a former employer finds out that a former employee is violating a non-solicitation agreement, the employer may seek injunctive relief to stop the violating conduct.

Methods Other than Non-Solicitation Agreements

Employers may choose to pursue a number of alternatives to non-solicitation agreements, some at the start of a new employment relationship and some after the employment has ended. Non-solicitation agreements are similar to other types of restrictive covenants such as non-compete agreements, agreements with a no-hire provision, confidentiality agreements, nondisclosure agreements, and non-compete agreements, although the applicability of these legal types of arguments will be a case-by-case choice . For example, we often see confidentiality agreements in the employment context that also purport to have a non-solicitation agreement and/or a non-compete agreement. An individual may also have a conflict of interest that would allow an employer to reasonably restrict certain activities. Accordingly, in lieu of a non-solicitation agreement, an employer should consider other express and implied obligations of its employee.