One question which often arises in the restrictive covenant context is whether an announcement that someone has joined a company or started his or her own business constitutes solicitation in violation of a non-solicitation covenant. While there is only a little guidance on this issue in Georgia, there are cases from other states which shed some light on the issue. Not surprisingly, the holdings of the courts in the various states that have addressed this issue are not consistent.
The only Georgia case of which we are aware in which this issue has been addressed is Robert Ltd. v. Parker, 215 Ga. App. 310, 450 S.E. 2d 219 (1995). In that case, after leaving his employer, the employee sent a series of letters to former clients and offered further assistance to those clients. The Georgia Court of Appeals held that it was a question of fact whether the letters constituted solicitation of the former clients and thus whether the employee violated his non-solicitation covenant. The trial court seems to have held that the letters were not efforts to solicit business, but the Court of Appeals held that such a factual determination was not a matter within the court’s authority and needed to be decided by the jury. Given that the written opinion in Parker does not provide any detail of the contents of the letters sent to the former clients, it is difficult to ascertain from this decision how a Georgia court might rule on the issue.
In Charles Schwab & Co. Inc. v. Carr, Case No. 2:11-CV-00184-36DNF, (N.D. Fla.), Judge Charlene Edwards Honeywell of the Northern District of Florida held that the plaintiff, Charles Schwab & Co. (“Schwab”) had not shown the defendants engaged in solicitations, rather than mere announcements, when they corresponded with clients to notify the clients of their departures from Schwab. In that case, the court found that the covenant prohibited solicitation, but did not prohibit contact with clients for any purpose. Thus, based on the evidence, the court found that the defendants had contacted the clients to notify them of their departure, but had not affirmatively solicited them. The court held that “[t]hese mere announcements, which allowed the clients to make informed decisions as to the future management of their finances, do not give rise to impermissible solicitations because there is insufficient evidence that the announcements were made with an intent to divert the clients’ business.” Id., citing Neuberger Berman LLC v. Strochak, Case No. 9:05-80112-cv-Ryskamp/Vitunac, at Doc. 57*8 (S.D. Fla. March 11, 2005) (“Merely announcing that a financial planner has joined a new firm is not solicitation”) and Sanford Bernstein & Co., Inc. v. Brief, Case No. 9:2000-8373-cv-Ryskamp/Vitunac, at Doc. 43 (S.D. Fla. September 25, 2000) (finding that the movant was unable to demonstrate solicitation when its former employee contacted clients to notify them of his move to a competitor and to inform them of the competitor’s of services). Compare Charles Schwab & Co., Inc. v. McMurry, 2008 WL 5381922 (M.D. Fla. 2008) (finding that sending out announcements and then following up with telephone calls constituted targeted contact aimed at clients in violation of non-solicitation provision).
Conversely, a federal district court in Arizona found that an announcement by a former bank employee constituted solicitation in violation of a non-solicitation covenant. There the Arizona judge found that the letter constituted a solicitation not only because it was targeted to specific clients, but also because it contained contact information initiating customers to call, email or write. Compass Bank v. Hartley, 430 F. Supp. 2d 973 (D. Ariz. 2006). In that case, the judge relied on another Arizona case, as well as other federal district court cases, to support its holding. Id. (citing Alpha Tax Services, Inc. v. Stewart, 158 Ariz. 169, 761 P.2d 1073, 1075 (1988) (finding that certain mailings addressed personally to customers constituted solicitations, where the notice contained an announcement of the opening of the service and a discount if the customer availed himself of the service) and Merrill Lynch, Pierce, Fenner & Smith v. McClafferty, 287 F. Supp. 2d 1244, 1248 (D. Haw. 2003) (holding that a “wedding style announcement,” even assuming it was sent as a matter of professional courtesy, was a solicitation where it was directed toward clients and based on client lists)).
In fact, in the Hartley case, the judge held that under Arizona law, it might be sufficient to constitute solicitation if the communication was targeted. See Merrill Lynch v. Schultz, III, 2001 WL 1681973 (D.D.C. Feb. 26, 2001) (finding that the defendant’s announcement of his resignation constituted a solicitation, because of his “initiating of targeted contacts through the use of client information gained through his employment”). In that case, the court also held that the employee could have generally informed his customers of his resignation, such as in a newspaper or trade paper advertisement, containing a non-specific, impersonal announcement to former clients. However, the court found that based on the Alpha Tax case, because the announcements of new employment were “addressed personally to customers” and contained a discount, they constituted personal solicitations.
The judge also noted the Arizona decision of McCallister Co. v. Kastella, 170 Ariz. 455, 820 P.2d 980, 981 (1992) which held that a targeted announcement did not constitute a solicitation. However, the judge found the announcement in that case to be distinguishable, because it did not contain contact information and it merely announced the employee’s intent to resign.
Importantly, in Hartley, the judge found that there was additional evidence showing that the employee intended to solicit the customers. The employee testified that immediately upon resigning, he instructed his wife to mail out pre-addressed and prepared Federal Express envelopes containing the announcements. The letters were sent via overnight delivery and were received by customers the very next day, which was the employee’s last day at his former employer. This and other evidence supported the inference that the employee intended to maintain a close relationship with the clients in the event that he left the employer to join a new company.
Finally, under California law, there is some support for the proposition that an announcement does not constitute a solicitation, however, that support is found in cases that do not directly involve non-solicitation covenants. For example, in Hilb, Rogal & Hamilton Ins. Servs., Inc. v. Robb, 33 Cal. App. 4th 1812 (1995), a California Court of Appeals held that there is a difference between a solicitation which is actionable and an announcement of a job change which is not. In response to a trade secrets claim, the employee argued that he did not solicit any of the former employer’s clients. He argued he simply informed some of them that he was changing employment and that the clients responded by asking him to move their accounts to his new employer. The California court held that “[m]erely informing customers of one’s former employer of a change of employment, without more, is not solicitation.” Id. (citing, Aetna Bldg. Maintenance Co., Inc. v. West, 39 Cal. 2nd 198, 246 P.2d 11 (1952). The Robb court further explained that “[t]he right to announce a new affiliation, even to trade secret clients of a former employer, is basic to an individual’s right to engage in fair competition. Therefore, the acquisition of trade secrets under circumstances giving rise to a duty to limit their use . . . clearly allows for such an announcement. To hold otherwise unnecessarily would contravene widely accepted and well-established business practices.” Id. Thus, the court held the former employee lawfully informed some of his former employer’s clients of his change in employment.
While we have not conducted an exhaustive search of all of the cases that may exist on this issue in the state and federal courts in the United States, these cases demonstrate that the issue is one that is not entirely clear and that given an opportunity to address the issue, it is difficult to ascertain how a Georgia court might rule.
Benjamin Fink is known for his work in noncompete, trade secret and competition-related disputes. A shareholder at Berman Fink Van Horn, Ben concentrates his practice in business and employment litigation.