The purpose of this post is to provide entrepreneurs with a general overview of non-solicitation agreements. This is not a legal opinion or legal advice. Questions should be directed to your lawyer who can advise you based on your situation.
First, what are they? A non-solicitation agreement restricts a former employee from soliciting either (a) employees or (b) customers of a business.
(a) Employees: Existing businesses have a desire to retain their employees. These businesses have spent time and energy training these employees. They have often invested many hours and dollars - establishing their employees in their trade or field. Therefore, the employers desire to retain them – particularly if someone wants to hire them to do the same thing at a potential competitor. Thus, the law allows a non-solicitation agreement to be written that protects former employees from recruiting away current employees.
(b) Customers: A person that leaves a business should not be able to utilize customer lists or a relationship to move a customer from their former employer to their new employer. It is the business that owns these relationships or potential relationships – not the individual employee. Thus, the law allows a non-solicitation agreement to be written that protects a former employer from soliciting customers with whom the former employee had a business relationship or personal contact because of their employment.
Businesses that use these agreements have, for example, a limited customer pool, specialized price points, or valuable employees that they want to retain.
Just as in the case of non-compete agreements, businesses have spent time, energy, and money developing information and a work force that they do not want to lose when their employees move on to work for a competitor or start a new business. And public policy is served by providing employers with some economic recompense or equity should another company attempt to displace their current employees for similar work or through a relationship built through the original company’s pocketbook (i.e. at work).
In general, Nebraska law requires that non-solicitation agreements are narrow and not overly broad: Non-solicitation agreements should only prohibit a former employee from soliciting customers with whom the employee did business and had personal contact.
Let’s revisit the example used in the last post about non-compete agreements to illustrate the harm that non-solicitation agreements are intended to prevent. Jane works for Dog Houses, a company that makes dog houses with automated heating, cooling, and lighting. Jane’s boss at Dog Houses asked her to sign a non-compete agreement. Now, let’s suppose that Jane’s employment contract also includes a non-solicitation clause.
Some of the same principles apply to the non-solicitation clause as the non-compete clause.
In order to be enforceable, the non-solicitation clause in Jane’s employment contract must not be so restrictive that Jane is unable to go out and earn a living or compete in the marketplace if and when she leaves Dog Houses to work for another company, or to start her own company.
The non-solicitation agreement restricts Jane from soliciting customers with whom she did business and had personal contacts, and from soliciting other employees of Dog Houses. In some instances and jurisdictions, these agreements may include additional restrictions.
Jane still retains the power in the relationship prior to accepting employment. She does not have to sign the agreement. However, Dog Houses has made Jane’s employment conditional on her signing the agreement. If Jane decides to sign the agreement, and Jane later quits and starts her own company, Jane is now subject to the rules of the non-solicitation agreement. Let’s imagine that Dog Houses later sues Jane because the company believes Jane is in violation of this agreement.
What are some indicators as to whether the non-solicitation agreement would be enforceable against Jane? Indicators of an enforceable clause would be a restriction that is narrowly crafted by Dog Houses to prevent actual harm that is directly tied to Jane’s former employment. In other words, if a non-solicitation clause only restricts Jane from soliciting customers (even through general advertisements) with whom she actually did business, AND had personal contact, it is enforceable in Nebraska. If the clause is overly broad, and restricts her from soliciting any customers in the industry, it is unenforceable in Nebraska.
In general, non-solicitation clauses:
Must be relevant to the employee’s work;
Must not be overly broad so as to prevent an employee from doing business;
Can be broader when they are paid for (such as when a business is being sold);
Can prevent a person from recruiting a new employee from his/her former employer; and
Do not prevent employees from voluntarily departing to join other organizations when there is no solicitation.
The scenarios below are an example of how to think about these agreements.
Scenario 1: Jane was the leading sales employee for Dog Houses, kept a customer list, and knew all 100 customers personally. The dog houses she sold for Dog Houses are equipped with special technology. Dog Houses conducted expensive market research to develop a price point that has helped them reach their revenue goals. After Jane quit and started her new company she called the technologist from Dog Houses, and offered him a job working for her.
Dog Houses sues Jane. Back to our question - Is the non-solicitation agreement Jane signed with Dog Houses enforceable? Probably. Why? Dog Houses has a legitimate interest in restricting Jane from soliciting other Dog Houses employees from going to work for her company because those employees had access to sensitive information such as technology and trade secrets that it does not want passed on to its competitor, i.e., Jane’s new company. If Dog Houses sues Jane in Scenario 1, Dog Houses is likely to win the lawsuit.
What about customers? After leaving Dog Houses, Jane called a few of her former Dog Houses retail customers, and asked them if they would like to buy her new product, (a comparable and competitive product to Dog Houses). Dog Houses sues Jane. Is the agreement enforceable? Probably. Why?
Jane’s non-solicitation agreement at Dog Houses restricted her from soliciting only those customers with whom she did business and had personal contacts while she worked at Dog Houses. The agreement would likely be enforceable in Nebraska because Dog Houses has a legitimate interest in protecting its customer list that it spent time and money to develop.
Now, let’s change the scenario to demonstrate a situation in which Dog Houses sues Jane, but Jane would win because she has not violated the agreement, whether or not the agreement is enforceable:
Scenario 2: Jane quit Dog Houses to start her new company. John, a technologist at Dog Houses approached Jane to help her build technology at her new company. (John did not sign an enforceable non-compete agreement). Retailers with whom Jane had never done business began to purchase her new products because they liked the new features not available in Dog Houses. Jane priced her products based on independent marketing research.
Dog Houses decides to sue Jane to enforce the non-solicitation agreement. Is the agreement enforceable? If the agreement Jane signed restricted her from soliciting customers with whom she did business AND had personal contacts, then the agreement is enforceable - but Jane has not violated it because Jane’s behavior in Scenario 2 was different than in Scenario 1. Therefore, Jane would win the lawsuit in Scenario 2 even if the agreement was enforceable. Why? Because Jane did not solicit her former customers or Dog Houses employees in Scenario 2.
Customers: While Jane is selling a similar product, she is not selling to her former customers – only to new ones that she has independently developed. Second, her market research and data is separate, different, and independently collected. She has therefore not solicited the customers of her former employer.
That is the difference between the two scenarios if the agreement is enforceable in both scenarios. The agreement would not be enforceable in either scenario if it had restricted Jane from soliciting any customers in her industry. Who would win in a lawsuit by Dog Houses to enforce the agreement in Scenario 2? Probably Jane because she has not violated the agreement whether or not it is enforceable.
Employees: In the case of the employee, John, Jane has also not violated the non-solicitation whether or not the agreement is enforceable. First, John does not have a non-compete agreement, so he is free to go to work at Jane’s company. Second, he is building a different technology that does not require the expertise that he acquired at Dog Houses. Third, Jane did not solicit him. He asked her for a job.
Hopefully this post has provided a good overview of non-solicitation in Nebraska as you navigate these agreements in your own startup.
 Remember, even if Jane quits her job at Dog Houses, the non-solicitation agreement is not an issue unless Dog Houses sues Jane for violating the non-solicitation agreement (by soliciting customers at Dog Houses, for example).