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Your Arizona Employer Has Sued You for Soliciting Its Customers and Employees, Now What?

Categories: Employment, Article

What to do when sued for non-solicitation of employees or customers

An employer may request that an employee sign a non-solicitation agreement. When the employment ends, the trouble sometimes begins. If you are an Arizona employee and your former employer has sent a demand letter, threatened to sue you, or has actually filed suit against you for soliciting its customers and employees, there are many important considerations.

The Non-Solicitation Agreement May Not Be Enforceable.

A non-solicitation agreement must be “reasonable.” Otherwise, it is not enforceable.

There are several reasons why a court might declare that a non-solicitation agreement is not “reasonable.” One common reason is that the agreement applies to former customers and former employees. At least one Arizona court has held that a non-solicitation agreement prohibiting solicitation of a former customer is not reasonable because the employer does not have a “protectable interest” in prohibiting such solicitation. Likewise, if an employee has already quit, your former employer may no longer have a protectable interest in that employee.

The non-solicitation agreement may also have an unreasonable duration. Judges are required to make fact specific determinations as to whether the duration is reasonable given all of the circumstances. Many non-solicit agreements last anywhere from one to two years. Courts generally find that such durations are reasonable. However, every case is different, and judges are hard to predict.

Courts are also asked to determine whether the geographic scope is reasonable. They examine whether the employer does business within the entire geographic scope. The court may also examine whether you had relationships with customers throughout the entirety of geographic scope. For example, the employer may do business nationwide, but some employees may only have customer relationships in Arizona. A nationwide geographic scope may not be reasonable in that case. Again, this is a fact specific determination, and the outcome can be difficult to predict.

In some cases, courts have taken issue with agreements that prohibit the employee from soliciting customers with whom the employee had no prior relationship. Courts have identified two problems with such agreements. First, employees often don’t know the names of every customer, which means they would not know who they are prohibited from soliciting. Second, the employer may not have a protectable interest in prohibiting solicitation of customers with whom the employee had no knowledge or relationship with.

Some non-solicit agreements may also contain vague terms. For example, the agreement may prohibit the employee from contacting customers and employees, but the agreement doesn’t define what constitutes a customer or employee. This leaves room for debate as to whether the agreement applies to former customers and employees. It also leaves for debate as to what exactly constitutes a “current” customer. Is a customer who ordered a product nine months ago a “current” customer?

What Does “Solicit” Mean?

Assuming the agreement is enforceable, the parties often dispute whether the employee “solicited” the customer or employee. In some cases, the customer and employee initiate the contact. In such cases, there is a debate as to whether the customer or employee solicited. The customer or employee may need to testify about what exactly was said and done.

What Is a Preliminary Injunction?

A former employer may be seeking a preliminary injunction. A preliminary injunction is a court order that prohibits the former employee from soliciting their customers and employees. If granted, the injunction order generally remains in effect throughout the lawsuit.

What Damages Can Be Recovered?

With respect to customers, the employer may recover any “net profit” that it could prove it lost from a customer. However, the employer is not entitled to the loss of the “gross” revenue from any given customer.

With respect to solicitation of employees, the employer can recover damages for any harm suffered as a result of losing one or more of its employees. The harm is often difficult to quantify.

Finally, the prevailing party can recover an award of attorney fees. Courts have broad discretion to determine who is the “prevailing” party and the amount of any attorney fee award.

Conclusion

Consult with an experienced employment attorney before soliciting any employee or customer. Getting early advice may save both time and money down the road. Non-solicitation lawsuits can be time consuming and costly.


About Author: Jeff Silence is a partner at Jaburg Wilk. He has helped to defend many employees who have been accused of violating their non-solicit agreements. He has also drafted many non-solicitation agreements for employers. He knows what to look out for and how to litigate these matters.