Non-Solicitation Agreements

all tied upNon-solicitation agreements can be a bit of a problem.  In general, these prevent a former employee from soliciting clients of their former employer.  So, the individual can work for a competitor, but she just cannot solicit (or “call upon” or (“accept business” from) an existing client of her former employer.  Non-solicitations can be less oppressive (or appear less oppressive), and one that is properly tailored can be tough to beat.  But, once again, employers overreach, and it is because of this tendency that employers can be their own worse enemy.

My experience is that courts are a bit more lenient when dealing with non-solicitation agreements.  In fact, the law of South Carolina is sparse in this area, and there are many questions that are not clearly answered.  There are persuasive arguments against enforcement of non-solicits that cover “prospective customers” and “former customers.” One federal case addressing this issue held: “Soliciting business from former clients of [the former employer] is not unfair or improper; [the former employer] has no relationship with these customers whatsoever.” Fournil v. Turbeville Ins. Agency, Inc., 2009 U.S. Dist. LEXIS 16303, *14-15, 2009 WL 512261 (D.S.C. Mar. 2, 2009);[1] see also Hejl v. Hood, Hargett & Assocs., 674 S.E.2d 425, 430 (N.C. Ct. App. 2009) (holding that a non-solicitation agreement that encompassed former prospective customers was overly broad: “Defendant’s attempt to prevent Plaintiff from obtaining clients where Defendant had failed to do so, is an impermissible restraint on Plaintiff.”).

“Prohibitions against contacting existing customers can be a valid substitute for a geographic limitation.” Wolf v. Colonial Life and Acc. Ins. Co., 309 S.C. 100, 109, 420 S.E.2d 217, 222 (Ct. App. 1992) (emphasis added) (citing Caine & Estes Ins. Agency, Inc. v. Watts, 278 S.C. 207, 293 S.E.2d 859 (1982)); see also Team IA. Inc. v. Lucas, 395 S.C. 237, 717 S.E.2d 103, fn. 1 & 2 (Ct. App. 2011).  In Wolf, the plaintiff-employee had been employed in insurance sales and had signed a non-compete agreeing not to solicit any “existing policyholders and payroll deduction accounts.” 309 S.C. at 105, 420 S.E.2d at 220. However, significantly, the agreement did not contain any geographic-based restrictions or a “blanket prohibition against competition,” such as exists here, but only applied to existing customers of the employer. The court upheld this narrowly tailored prohibition, based upon a South Carolina Supreme Court decision, Caine & Estes Ins. Agency, Inc. v. Watts, that limited its holding to current/existing customers. Id.; see also Caine & Estes, 278 S.C. at 209, 293 S.E.2d at 860. And once again in Oxman v. Profitt, the South Carolina Supreme Court upheld a non-solicitation that was limited to existing policyholders. 241 S.C. 28, 126 S.E.2d 852.

Related to this area is the duty of loyalty that exists in every employment relationship.  It would be a breach of the duty of loyalty to solicit your employer’s customers before you leave employment.  Pre-termination activity can be a tricky area, and folks should be extremely cautious when planning to form a competing business (or to go work for a competitor).  Remember emails and cell phone records can be used as evidence, and they can get them from the former employee or the person who received the email or call.  And deleting emails can just lead to bigger problems, and as I have found out, just because something was deleted does not mean it no longer exists.