Question: I am a Business Development Specialist for a large Wealth Management firm. When I started my job four years ago, I was required to sign a non-compete agreement.

The non-compete agreement says that, if I ever leave my job with the firm, for any reason, for 12 months I can’t solicit or transact any business with “customers or prospective customers” of the firm. Isn’t everyone a “prospective customer?” If not, then who is and who is not?

Leon
Louisville, Kentucky

Answer: Dear Leon: I’m glad you submitted your question, because it’s a very commonly one. It comes up nearly every time I counsel a client regarding a non-compete agreement or a non-solicitation agreement. This is what I counsel my clients:

1. “Prospective customer,” as used in a non-compete agreement, does not mean “possible customer.” With few exceptions, the law is based in plain old common sense, and requires that common sense be applied to the interpretation of legal documents, including non-compete agreements, in a reasonable fashion.

“Prospective customer” cannot mean “possible customer” because if it did, why then use the word “customer” at all; that is, why not just say “any person in the world?” Also, if “prospective client” meant “possible client” in non-compete agreements, then you would be effectively barring someone from working in their entire industry, anywhere in the world, which is an unreasonable burden to impose.

2. In non-compete agreements, “prospective client” is synonymous with “business prospect,” and such persons share three attributes. When Courts have been faced with the question you raise, they have commonly analyzed the problem by looking for the presence of three attributes: (a) “authority” to do business, (b) “capacity” to do business, and (c) “willingness” to do business.

(a) First, let’s look at “authority”: A person cannot be a “prospective customer” unless he or she is authorized by his or her company or organization to transact business with you. Thus, if your former employer sells large construction machinery, your soliciting someone to do business whose job it is to purchases staplers and paper clips – even at a large construction company – is not a violation of your non-compete agreement because it is not doing business with “prospective clients or customers.”

(b) Second, let’s look at “capacity”: If your company sells large construction equipment, you can do business with a dealer of motorcycles and boats without violating a non-compete agreement. Because that dealer does not have the capacity, or ability, to purchase large construction equipment from you, you can do business with them without fear that you are violating a non-compete agreement that prohibits your doing business with a “prospective client or customer.”

(c) Third, let’s look at “willingness”: If a person or company has not indicated a willingness or desire to become a client or customer with your former employer, there is no reason to believe that your doing business with them would violate a non-compete agreement that prohibits doing business with a “prospective client or customer.”

Our 185-Point Master Guide & Checklist to Non-Competition Agreements is a perennial favorite. It takes you step-by-step through everything you need to know. To obtain your copy, just [click here.] Delivered by Email – Instantly!

3. To avoid violating non-compete prohibitions concerning “prospective” clients or customers, here are some practical guidelines to follow: If you know that . . .

(a) . . . your former employer has done business with a certain person or company within the last two or three years, or
(b) . . . your former employer is in discussions, negotiations or preparations to do business with a certain person or company, or
(c) . . . your former employer recently solicited business from a certain person or company, or
(d) . . . your former employer is planning to solicit business from a certain person or company, or
(e) . . . a certain person or company has recently contacted your former employer seeking to do business with your former employer,

. . . then, in any of these circumstances, you would be wise to presume that person or company is a “prospective client or customer” of your former employer.

Sometimes, it may be wise to proactively seek a resolution of your non-compete dilemma with your former employer before a legal dispute arises. We offer a “Model Letter: Proactive Attempt to Prevent a Potential Non-Compete Dispute” that shows you “What to Say, and How to Say It.™ To get your copy, just [click here.] Delivered by Email – Instantly!

4. The analysis is the same whether “client,” “customer,” or any similar word is used. Just in case you are curious, the analysis above is the same whether the word “customer,” “client,” “shopper,” “buyer,” “end-user,” “patient,” “applicant,” “patron,” “subscriber,” “supporter,” or similar words are used.

Leon, I hope you see that the law looks both to “What is reasonable?” and “What makes common sense?” in most of its application to issues, and this issue in particular. Non-compete restrictions can represent a minefield to your moving forward with future employment transverse, but keeping yourself on the safe, reasonable and common-sense side of questions that arise is the safest and wisest path to follow.

Hope this is helpful to you, and others. Really do.

My Best,
Al Sklover 

P.S.: Have you received a letter from your former employer’s attorney demanding you “Cease and Desist?” Are you concerned you might receive one? We offer a Model Letter entitled “Response to Attorney’s ‘Cease and Desist’ Letter Alleging Non-Compete Violation.” It shows you “>What to Say, and How to Say It.™ To obtain a copy for your adaptation and use, just [click here.] Delivered by Email – Instantly!

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