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If you consult a business lawyer in Phoenix about important business contracts, they may tell you about common restrictive covenants. Entrepreneurs and company leaders could deploy such agreements to protect trade secrets and legitimate business interests. They may ask employees to sign either a non-solicitation or a non-compete agreement, but what is the difference between the two?

Discover what it means to sign a non-solicitation agreement vs. a non-compete agreement and whether you should issue these contracts to employees.

What Is the Purpose of a Non-Compete Agreement?

By issuing a non-compete or non-solicitation agreement to an employee, you can deter them from taking intentional steps to hurt your enterprise. Non-compete agreements restrict a former employee from directly competing with you after your employment relationship ends and may vary based on individual circumstances.

Imagine you’re a small business owner and hire an employee who quickly learns the ropes and plays an integral role in growing your enterprise. You decide to promote them to a leadership position, which would give them access to confidential information regarding customers and potentially affect your legitimate business interests. To protect your interests, you ask them to sign a non-compete agreement in exchange for the promotion.

Depending on the specific non-compete provisions, signing the document could restrict that worker from:

• Starting their own business that directly competes with their employer’s company
• Leaving their position to work for a known competitor in the same industry
• Taking either of these actions in a certain geographic area (such as in the same county as the employer’s company)

If these provisions seem too rigid, you could opt for another enforceable restrictive covenant.

Understanding Non-Solicitation Agreements and Their Role in Business Relationships

Asking current employees to sign a non-solicitation agreement vs. a non-compete agreement comes with limitations but still protects your interests. This restrictive covenant prevents departing employees from soliciting clients or customers they know from working with you. It can also restrict them from soliciting other employees away from the company.

Suppose an employment contract only includes a non-solicitation clause rather than a non-compete clause. If they sign it and then leave the company, a worker is free to start their own business within the industry or even accept a job offer from a competitor. However, they won’t be able to approach their former employer’s clients or current staff about forming a new business relationship.

Non-Solicitation Agreement vs. Non-Compete Contracts: How They Differ

The key to making solid business agreements is fully understanding what each contract entails. Both non-compete and non-solicitation clauses outline post-employment restrictions. However, they have distinct differences that are worth noting.

Take a closer look at how these contracts differ and what signing them could mean for you.

Non-Compete Agreements Influence Where Someone Can Work

Say you sign your employer’s non-competition agreement before terminating your employment. You must comply with the contract’s terms, which directly impact your next job.

For example, if the contract states that you can’t work for a competitor or launch your own business within the same field in your previous employer’s geographic area, it could limit your endeavors. Upon analysis, these provisions may only be enforceable for a certain period of time.

Non-Solicitation Agreements Center Around Approaching Past Clients or Colleagues

In certain jurisdictions, restrictions are much looser with a non-solicitation agreement vs. a non-compete clause. You will be able to continue working in the same field and can even accept a similar position at a competing company.

Your main limitations will revolve around bringing over customers or employees tied to your former employer. Bear in mind that Arizona courts view customer non-solicitation clauses as a type of non-compete, making these agreements subject to the same type of analysis.

How Courts Enforce Such Agreements After a Potential Breach of Contract

Every employer and impacted employee should be aware of the legal challenges that come with breaching restrictive covenants. Say your former employee signs a non-compete agreement that is meant to last for two years. Six months after they leave their position, you learn that they’re starting their own company that closely aligns with yours.

Litigation may be possible if one party breaches the contract. When a dispute arises, the court can intervene and determine whether a non-compete or non-solicitation agreement is enforceable. The court may consider factors like:

• Geographic areas: Is someone’s new place of employment well beyond the geographic scope that would put them in competition with their previous employer?
• Available trade secrets: Is an agreement enforceable even if the employee didn’t have access to major trade secrets or confidential information?
• Someone’s ability to find work: Will an individual subject to a non-compete or non-solicitation agreement be able to find meaningful work?

Legal professionals evaluate the unique circumstances surrounding these disputes. For instance, let’s say a salesperson agrees not to work for a competing company in the area. When their former employer takes legal action against them, the court will review the details behind the dispute.

Their non-compete agreement may only indicate competitors within the region. If they start a new job at a company in another state, it could be considered a reasonable move.

What if you work in a niche industry with limited work opportunities? Your former employer may benefit from this provision, but you could face monumental hardships while trying to find work. For this reason, the court may construe the agreement against the employer.

Discuss Critical Employment Agreements With an Experienced Lawyer

Are you unsure if you should issue a non-solicitation agreement vs. a non-compete? Is preventing trade secret theft your biggest concern as a business owner? Contact Anthony Law Group to discuss these issues with a knowledgeable business lawyer.

Founding attorney Stephen J. Anthony has over 25 years of experience practicing business and contract law. Whether you’re an employer looking to enforce an agreement or an employee expected to sign a contract, Anthony Law Group may be able to help you understand your options.

Call (602) 362-2396 or submit our online request form to schedule a consultation.