Why do Companies Protect Their Client Lists?
A company’s clients are generally considered to be “trade secrets” of that company. This is due to the fact that companies have to work long and hard to build their client lists. Client lists are usually labeled as “confidential” and within the company access to them is limited. Other companies divide their client lists by sales/business geographical territory to minimize access of employees to the lists even more. Legally protecting the company’s trade secrets is viewed by the courts to be a legitimate business interest. According to section 542.335 of the Florida statutes, “legitimate business interests” include “substantial relationships with specific prospective or existing customers, patients, or clients”. The Restatement (Third) of Unfair Competition states, “[t]he general rules that govern trade secrets are applicable to the protection of information relating to the identity and requirements of customers.” However, if the company’s client list is well known outside the firm and/or can be obtained through a public source – the list will most likely not be considered as a “trade secret” by a court.
Have you Signed a Non-Solicitation Agreement?
A non-solicitation agreement is what a company often requires its employees to sign prior to commencing employment. This agreement prevents an employee from soliciting his former employer’s clients for a specified time period after the employment is terminated. The time period must be “reasonable” in order for the agreement to be enforceable in court. Typically, non-solicitation agreements are not supposed to last for more than two years. These agreements are viewed favorably by the courts, as they preserve the employee’s right to work in any industry and also protect the former employer’s client list. Both the employee and the employer must sign a non-solicitation agreement.
What If You Haven’t Signed a Non-Solicitation Agreement?
Florida is among the forty-two states that have adopted the Uniform Trade Secrets Act. This statute states that a former employee is prohibited from stealing his employer’s “trade secrets”, even in a case when the employee has not signed a non-solicitation agreement. A client list is considered such a trade secret.
Nonetheless, there are options for those who have not signed a non-solicitation agreement to avoid being sued:
- An employee can try to limit his solicitations to clients for whom he was the “sole and exclusive” contact in his former company.
- An employee can wait until after he left the firm before sending those clients his new contact information.
- It is advisable for the former employee to not offer those clients any discounts that would not be available to a new client.
It should be noted that it is illegal to remove any client files from the company, no matter the intentions that the clients have themselves have expressed. Instead, a former employee can send the company a “form letter” for the client that would terminate that client’s relationship with the company and would request the client files’ transfer to the former employee.
How can you get Around a Non-Solicitation Agreement?
But what if you have signed a non-solicitation agreement? In that case, you still have a few options to consider.
- Before signing a non-solicitation agreement, a future employee can insert a provision that exempts the clients he had prior to joining the company. It is also best to keep records of these excluded clients.
- Most courts would find there was no “solicitation” if the clients are part of the former employee’s personal “social circle”, and if they themselves initiate a discussion about following the employee to his new company.
- Finally, advertising a new business to the general public is legal, as long as the advertising doesn’t target specific clients. It is legal to mention in the advertising where the employee formerly worked as well.