Non-Solicitation Restrictive Covenant

Approaches and Perspectives

Non-Solicitation Agreement

 A Non-Solicitation Agreement seeks to protect the interests of the

employer by restraining the employees from soliciting clients /
customers for competitors after the termination of employment
relationship.

 However, it does not prevent the employee from working for the
competitor but only restricts employee from soliciting the clients
/ customers of the previous employer.
Chatam Rule (Enforceable)
 Even when an employee is terminated without cause by the
employer, it is perfectly fair for the employer to prevent an ex-
employee from exploiting, for his own benefit and /or the benefit
of his/her present employer but detrimental to the interest of the
ex-employer, the names, addresses, contact details, knowledge of
their requirements, and the goodwill generated by the employer
or by the employee during the term his/her employment.

 Reason: Non-Solicitation Covenant stands on a different footing

(see the seven factor non-solicitation test) than the Non-compete
agreement.
UFG International Rule (Not Enforceable)

 Non-Solicitation Covenant poses even greater restrictions on

employee mobility than non-compete agreements and can
effectively deny employees out of the prospective job
opportunities.

 Hence, it should not be enforced in the context where mutuality

of obligation is destroyed by the employer (termination without
cause).
May Not Be Enforceable When…
 Customers’ names and contact details are readily available and accessible
especially in sales driven business. (e.g. Priya’s effort to reach out the
customers using PHDCCI Directory) or

 When Sales is based on Cold Calls;

 Customers purchased products / services from multiple competitors

 Sales is based on individual purchase orders (meaning onetime or one-

off transaction)

 When the employer fails to prove “Near Permanent” Relationship with

customer
“Near-Permanent Relationship Approach”
Seven Factor Test of Near-Permanency

1. The length of time required to develop the clientele;

2. The amount of money invested to acquire the clientele;

3. The degree of difficulty in acquiring new clientele;

4. The extent of personal contact with customers by the employee;

5. The extent of the employer's knowledge of its clientele;

6. The duration of the customers' association with the employer; and,

7. The continuity of employer-customer relationships.