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Elizabeth A. Semler
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Employment eAlert: Is Your Non-Solicitation Agreement Really An Improper Non-Compete?

January 2012

Elizabeth A. Semler
503.243.1661 x 264

The Oregon District Court recently held that a non-solicitation agreement that stated employees "will not, directly or indirectly, solicit, divert, or appropriate (or attempt to solicit, divert, or appropriate). . . any person or entity that was a customer or prospective customer of [employer]" for two years following their termination, was effectively a non-competition agreement. The court found that this language not only restricted soliciting and transacting business with employer's actual customers, but it also prevented employees from engaging in activities that indirectly diverted prospective customers away from their employer, and thus effectively prohibited employees from competing with their former employer. Nageli Reporting Co. v. Petersen, et al., 2011 US Dist. LEXIS 140246. Because the employer did not abide by the statutory rules for a valid non-competition agreement, the court held that the non-solicitation agreement was unenforceable.

The non-solicitation agreement was also found to be unenforceable because it was too broad. To be enforceable, a non-solicitation agreement must, among other requirements, be reasonable. It must afford fair protection to the interests of the employer and must not be so broad that it interferes with the interests of the public. In this case, the agreement precluded employees from conduct that "even indirectly diverts former or prospective customers" from the employer, rather than merely restricting employees from soliciting clients with whom they had actual contact while employed by the employer. Based on these facts, the court found the non-solicitation agreement unreasonable and unenforceable.

The lesson here for employers is to be careful when drafting non-solicitation agreements and to narrowly tailor post-termination restrictions for employees.

If you have questions about non-solicitation or non-competition agreements, or have questions about other employment law issues, please contact us.

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