Non-Solicitation Agreement Enforceable, Even If Clients Make First Contact

June 11, 2013

Non-solicitation agreements generally prevent employees from soliciting business from the employer's customers after the employee's employment has ended. In a recent decision from the Massachusetts federal district court, an ex-employee argued that he was not in violation of his non-solicitation agreement with his former employer if the former employer's clients were the parties to initiate the first contact with the ex-employee at his competing employer's company. Judge Woodlock rejected that argument.

In Corporate Technologies, Inc. v. Harnett, Harnett had worked as a salesman for Corporate Technologies, Inc. (CTI), an information technology solutions company, before leaving CTI to work for CTI's competitor, OnX USA, LLC (OnX). When Harnett first joined CTI, he signed a Non-Disclosure and Non-Solicitation Agreement in which he agreed to not divulge confidential information he learned while employed at CTI and to not solicit business from CTI's customers for one year following the termination of his employment with CTI. Specifically, Harnett was precluded from "directly or indirectly, alone or as a partner, officer, director, employee, independent contractor, [etc.] ..., solicit, divert or entice away existing customers or business of [CTI]."

On Harnett's first day at OnX, OnX sent an announcement about Harnett's new position to more than one hundred potential clients, which included Harnett's eight most active clients at CTI during the previous year. Four of those CTI clients responded to the announcement, and Harnett met with those clients to discuss and encourage their business with OnX. At least one of those four clients entered into an agreement with OnX for its services. Additionally, Harnett made efforts to secure a pricing discount arrangement with vendors in an effort to acquire the business of two more of those four clients.

CTI brought a lawsuit against Harnett and OnX, claiming that these actions were violations of Harnett's Non-Disclosure and Non-Solicitation Agreement, and sought a preliminary injunction to prevent Harnett from doing business with clients he had worked with at CTI. Harnett and OnX argued that, although Harnett had open business dealings with his former CTI clients, his interactions with those clients were not a violation of the agreement. They argued that, as long as the clients were the first to contact Harnett, the resulting business discussions could not constitute solicitation.

Judge Woodlock disagreed, labeling this argument as "an arbitrary distinction," and noting that Harnett's actions fell squarely within the agreement's description of prohibited activity. Judge Woodlock explained: "Since leaving CTI and joining OnX, [Harnett] has actively pursued business from these companies, seeking to convince them to do business with OnX. This necessarily involves solicitation - by encouraging the companies to purchase products and services through OnX - as well as enticement - by offering incentives to do so, such as better pricing, purportedly better products and services, and whatever other comparative advantage Harnett, as a salesman, would customarily use to attract clients to his new company. Neither the plain meaning of the word solicit, nor the plain meaning of the word entice requires some kind of first contact."

The court also pointed out that "Massachusetts courts do not draw a bright-line distinction between those actions following first contact by the client and those following first contact by the employee." It is true that a non-solicitation agreement will not prevent a company from receiving business initiated by the client, if there has been no direct or indirect participation in encouraging that business by the individual employee bound by the agreement. "However, this narrow carve-out from a non-solicitation agreement for receiving business does not allow a salesman to take active steps to persuade the client and actually solicit its business."

Here, as Judge Woodlock observed, Harnett and OnX together actively pursued Harnett's former clients at CSI, soliciting, encouraging, and attempting to persuade them to bring their business to OnX. This violated Harnett's agreement with CSI. Finding that CSI was likely to succeed on the merits of its claims against Harnett and OnX, and that CSI would suffer irreparable harm in the absence of injunctive relief, Judge Woodlock granted the injunction, enjoining Harnett from doing business with his former CSI clients for a period of one year, in accordance with the terms of his Non-Solicitation Agreement.