Arizona Non-Solicit: Clients
June 17, 2019
Arizona Non-Solicit: Clients
A non-solicitation agreement is used to stop an individual or entity from stealing a company’s clients away both during and after that individual’s relationship with the company has ended. Because non-solicitation agreements do not stop an individual from working, but rather only stop the individual from taking clients from a previous company, Arizona judges are more likely to enforce non-solicit agreements than non-compete agreements. However, non-solicitation agreements must still be narrowly drafted to protect a legitimate interest of the company. [See i.e. Karp v. Avella of Deer Valley Inc.]
Three primary concerns come up when reviewing non-solicit agreements. First, who is a restricted client? Second, what is a solicitation? Third, can past-employee contact clients if the work they now do is unrelated to the work they performed for the company?
Who is a Restricted Client
One thing that the Arizona judges have made clear is that not every company client is a restricted client. Specifically, Arizona judges have found that if a non-solicitation restricts an employee from contacting any and all of the company’s clients after his/her employment has ended, then that is likely unenforceable unless the employee had contact with every one of the company’s clients during his/her employment. [See i.e. Orca Communication Unlimited, LLC v. Noder]
Rather, Arizona judges require that the company should restrict a non-solicitation to only the individuals that the employee had contact with during employment. This goes for prospective clients as well. In addition, when a company has lost the business of a client through no fault of the former employee, then the former employee is likely able to reach out to that client [See i.e. Hilb, Rogal and Hamilton Co. v. McKinney]. As with all restrictive covenants, there are many factors to consider when deciding whether a client is a restricted client or not.
What is a Solicitation
Next, a frequently asked question is, what constitutes a “solicitation.” For example, if a customer reaches out to an employee after that employee leaves employment with the company, is that a solicitation? An Arizona judge on the court of appeals answered this question when saying that “merely informing customers of one’s former employer of a change of employment, without more, is not solicitation. Neither does the willingness to discuss business upon invitation of another party constitute solicitation on the part of the invitee.” [See i.e. Alpha Tax Services Inc. v. Stuart]
However, this same court found that sending direct mail or reaching out to the clients telling them of the employees new work location would be a solicitation, even if you tell them nothing more. This concept is supported by other Arizona judges such as in instances where a past employee sent targeted letters to clients which provided these clients with the past employee’s new phone number and contact information. [See i.e. JP Morgan Securities LLC v. Krich]
Lastly, individuals who leave a company sometimes do not go into a remotely similar type of workplace. Is it okay for the ex-employee to solicit clients of the company for a different opportunity? This question likely goes more towards issues surrounding non-disclosure or confidentiality agreements since. A likely issue to arise in this situation is what damages has the company actually suffered if they lose no business from the solicitation? While the answer may not be clear, there are some guiding principles that can help in this decision-making process.
Contact Counxel Legal Firm
If you have questions about a non-solicitation agreement or you would like to set up a strategy session with an attorney, then Counxel Legal Firm would love to help. Contact us at 480-536-6122 or at email@example.com.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact firstname.lastname@example.org or 480-536-6122 to request specific information for your situation.
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