It takes time and money for any business to develop a client base. When a former employee then tries to take those clients away, it can be financially detrimental.
Non solicitation agreements are enforceable in Michigan and can help businesses protect one of their most valuable assets—their clients.
What Is a Non Solicitation Agreement?
A non solicitation agreement prohibits an employee from soliciting their former employer’s clients, customers, suppliers, or employees. These are commonly found in employment contracts and often include a specific duration, geographic scope, and statement that the employee agrees not to violate the provision.
Defining what constitutes “solicitation” is a question courts have grappled with. Recently, the Michigan Court of Appeals ruled that responding to a former client’s request is a form of solicitation if the employee takes affirmative steps to respond to a request for a bid or takes an “active role in the client’s decision-making process” to transition the client to their new company.
There is a difference between non-solicitation and non-compete agreements. Non-compete agreements are much broader and can prohibit former employees from sharing trade secrets, working for a competitor, starting a competing business, or soliciting.
Non-solicitation agreements, on the other hand, are much narrower in scope and aim only at preventing solicitation. A former employee under a non-solicitation agreement may immediately begin competing against his or her previous employer if no other agreements prohibit it.
Ensure the Agreement Is Enforceable
Courts recognize the time and effort that go into building a strong client base and acknowledge that it is unfair for an employee to interfere with those relationships.
Therefore, non-solicitation agreements are enforceable in Michigan.
A non-solicitation agreement is not automatically enforceable because the employee signed it. The provisions must seek to protect a legitimate business interest and cannot merely be anti-competitive.
For instance, restricting a former employee who lacks access to any sensitive or proprietary information, or client contacts, could be considered to be anti-competitive. In addition, non-solicitation agreements must be limited in duration and geographic scope.
However, Michigan courts recognize a distinction between non-solicitation/non-compete agreements in an employment agreement compared to those in an agreement for the sale of a business.
Ways to Enforce a Non-Solicitation Agreement
When an employee violates a non-solicitation clause, there are several options to enforce the agreement.
Cease and Desist Letter
A well-crafted cease and desist letter may be enough to stop an employee from continuing to breach a non solicitation agreement. The letter can include a summary of the non-solicitation provision, the employee’s contractual obligations, and an explanation of how the employee is in breach.
You may also specify the damages your business plans to seek if the employee continues to violate the non-solicitation agreement.
Alternative Dispute Resolution
Employee contracts often require the parties to participate in alternative dispute resolution (ADR) before initiating, or instead of, litigation. This may be either mediation or arbitration. ADR is a great alternative to litigation as it is typically less expensive and more efficient than going to court.
Businesses sometimes prefer ADR since the processes are private as opposed to the public record involved when you litigate.
Sue for Injunctive Relief/Restraining Order
Courts commonly will consider granting injunctive relief, such as preliminary injunction or temporary restraining order if an employee breaches a non-solicitation or non-compete agreement.
However, there are several requirements that courts must follow before granting an injunction, such as making a determination whether the breach can be addressed through an award of money. Many courts will decline to issue injunctive relief if the breach can be remedied by an award of monetary damages.
Sue for Breach of Contract
If the alternative methods are ineffective, you may need to sue the former employee for breach of contract. For a valid breach of contract claim, you must prove the following:
- A contract exists,
- The employee breached the terms of the contract, and
- You suffered damages as a result of the breach.
Michigan has a six-year statute of limitations for most breach of contract claims. Therefore, it is crucial that you contact an experienced commercial litigation lawyer as soon as you suspect a former employee has breached a non solicitation agreement.
If the former employee solicits through a new employer, you may also sue that employer and assert vicarious liability for the employee’s breach.
Types of Relief
Based on the extent of the harm caused by the former employee, there are different types of relief available.
When suing for breach of contract, you may move for a preliminary injunction as soon as you file the non solicitation lawsuit.
If granted, this will order the employee to stop soliciting. You do not need to show proof of damages to be successful on an order for injunctive relief.
Monetary damages for breach of a non solicitation clause may be sought in addition to injunctive relief and can come in several forms.
Compensatory damages are a way to receive compensation for lost profits due to the employee’s solicitation of your clients. The court requires a showing of actual losses, which can be calculated many different ways.
Punitive damages are a way of punishing the former employee for his or her violation of the non solicitation agreement. Your petition must include strong evidence of the employee’s malicious behavior.
Liquidated damages are a contracted amount that the employee agrees to pay in the event of a breach. If agreed to, these will be included in the employment agreement.
Court Costs and Attorney Fees
A judge may award court costs and attorney fees as long as you ask for them in your petition.
Contact The Miller Law Firm
At The Miller Law Firm, we represent clients of all business types and sizes. Our team of skilled attorneys knows the intricacies of commercial and contract law. We are nationally recognized leaders in complex commercial litigation and dispute resolution businesses. Our lawyers have successfully recovered over $3 billion in damages for our clients. Call or contact us today for assistance with your case.