Maintaining good relationships with customers and clients is a very important way for a company to ensure that they continue to receive business. However, it is difficult for an employer to maintain such relationships when former employees begin to solicit away customers and clients. In order to prevent such activities, an employer can require employees to enter into non-solicitation agreements. Non-solicitation agreements can either take the form of a distinct separate employment contract, or can simply be included as a clause within the overarching employment agreement. By signing such an agreement, an employee promises to not solicit their past employer’s customers and/or clients, for the benefit of themselves, or the benefit of a competitor/new employer.
In many states, an employee can be required to sign a non-solicitation agreement before or after being hired by an employer, and also when the original employment contract has been terminated or otherwise ends. However, California is different and places a high premium on employee work mobility, as well as for unfettered business competition. As a result, a client/customer non-solicitation agreement is neither enforceable nor valid under California state law.
California Law and Non-Solicitation Agreements
Section 16600 of the California Business and Professions Code provides that:
“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
This section applies to general non-compete agreements that prohibit a person from working in a similar profession/business after past employment has ended, and also encompasses a past employee’s promise not to solicit their former employer’s clients or customers. Because of these laws an employer who attempts to make you sign a non-solicitation agreement could be exposed to legal liability. Furthermore, any termination for refusal to sign a non-solicitation agreement could expose an employer to a wrongful termination claim. In Los Angeles, such liability could exist even when that employer does not attempt to exercise the supposed rights that are contained under the non-solicitation agreement. Essentially, an employer’s insistence or requirement that an employee sign a client/customer non-solicitation agreement is illegal under California law.
In the past, employers attempted to argue that non-solicitation clauses could not be considered true non-compete agreements, and thus were allowable under California law. Instead, such employers argued that non-solicitation agreements were only minimal restraints on employee mobility that were necessary to protect trade secrets and extremely valuable customer data/information. In fact, some federal courts upheld this narrow restraint argument as a valid exception to the Section 166600 prohibition against client non-solicitation agreements.
However, in 2008 the California Supreme Court explicitly rejected the narrowly tailored non-solicitation agreement approach in Edwards v. Arthur Anderson. Within this case it was held that non-solicitation agreements are in fact non-compete agreements, no matter how narrowly tailored, because they provide restraints on an employee’s ability to to engage in his or her’s chosen work, and thus are invalid unless made lawful under applicable statutory exceptions.
Guidance for Employment Contract Disputes in LA
Customer/client non-solicitation agreements are intended to help businesses maintain their competitive advantage by prohibiting past and current employees from pursuing business from customers and clients. Such agreements are considered non-compete agreements and are invalid and unenforceable under California law. Contact HKM Employment Attorneys LLP today if you either feel you have been forced or propositioned to sign a customer non-solicitation agreement by an employer, or have questions about how you can legally protect your client/customer lists.