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Non-Solicitation and Non-Acceptance of Business Clauses are Not Enforceable in San Diego
As many San Diego and California businesses know, non-compete agreements are not enforceable in California. That is, except for a few limited circumstances, you cannot enforce any agreement by which an employee agrees not to compete against your business if he or she leaves to take another job or start a new business. This is codified at Cal. Bus. & Prof. Code, § 16600 which 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.” The same is true for non-solicitation of customers clauses and is likely true for non-acceptance of business clauses.
San Diego Corporate Law: Non-Solicitation Clauses Unenforceable
In general, a non-solicitation clause prohibits a former employee from soliciting your customers. An example is this clause from Dowell v. Biosense Webster, Inc., 179 Cal. App. 4th 564 (Cal. App. 2nd Dist. 2009):
Employee “… will not solicit any business from, sell to, or render any service to, or, directly or indirectly, help others to solicit business from or render service or sell to any of the accounts, customers or clients” of COMPANY
This provision was held unenforceable by the California Court of Appeals in Dowell and in other California cases.
San Diego Corporate Law: Non-Acceptance of Business Clauses Likely Unenforceable
A slightly different but related clause is a non-acceptance of business clause. In general, such a clause prohibits a former employee from ACCEPTING business from your customers, whether or not your ex-employee solicited or initiated contact with the customer. In general, acceptance, by itself, does not constitute “solicitation.” Thus, the best practice in terms of drafting contracts is to have both clauses, separate and distinct. An example might be a clause like this: “Further, Employee shall NOT accept any business from customers or clients of COMPANY even if the customer or client initiates contact with Employee and/or requests to do business with Employee. This prohibition shall last for a period of …. [months/years].”
Our research has uncovered no California cases directly holding a non-acceptance clause like this to be unenforceable. However, an old California Supreme Court case held unenforceable an agreement by an employee that he would not “solicit, serve and/or cater to any of the customers of the Company served by him” while he was an employee. See Aetna Bldg. Maintenance Co. v. West, 39 Cal. 2d 198 (Cal. Supreme Court 1952). Likely, the idea of “serve and/or cater to” includes the idea of “accepting” business from a customer of one’s former employer. Likewise, the Dowell provision listed above includes the words “sell to or render any service to…” Again, likely those words encompass the idea of “accepting” business. See also Fillpoint, LLC v. Maas, 208 Cal. App. 4th 1170 (Cal. App. 4th Dist. 2012) (invalidating a provision that prevented ex-employee from “making sales” to customers).
San Diego Corporate Law: Narrowly Tailored Clauses
It is important to be aggressive when writing contracts; you have a duty to protect yourself and your business. You may insert non-acceptance of business clauses in your employment contracts alongside confidentiality and nondisclosure of trade secrets clauses. To enhance the chances of success, it is recommended that the non-acceptance clause be narrowed to specific clients and customers. California courts generally comment on the fact that many contract provisions are not “narrowly-tailored” to protect trade secrets and confidentiality. This is often listed as the rationale for finding the clauses to be unenforceable. See Dowell, for example (holding that “… the noncompete and non-solicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.”) However, if specific clients and customers are listed, the courts might deem the provisions narrowly tailored enough to justify the restraint on competition.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement employment agreements and all other types of business contracts. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Contact Mr. Leonard by email or by calling (858) 483-9200.
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