By Benjamin Fink

Many employees sign non-solicitation agreements with their employers that prohibit the solicitation of the employers’ customers following the end of employment. When these individuals leave their employers to join another company or start a competing business, I am often asked, “Does announcing that ‘Joe’ joined our company [or started his own business] constitute solicitation of customers?” Or, “Is ‘Joe’ in violation of a non-solicitation covenant?”

Unfortunately, there is very little guidance from the Georgia courts on this issue. However, there are cases from other states that do shed some light on it, though they are not very consistent. The cases below demonstrate that the issue is one that is not entirely clear, making it difficult to ascertain how a Georgia court might rule. For this reason, if you or your newly hired employee is subject to a non-solicitation covenant, it is very important that you seek counsel before sending out announcements.

The highlights below might help you to form your own opinion on this subject:

Robert Ltd. v. Parker (Georgia). Dating back to 1995, this is the only Georgia case of which we are aware in which this issue has been addressed. In this case, after leaving his employer, the employee sent a series of letters to former clients to offer further assistance.  The Georgia Court of Appeals held that a jury needed to decide whether the letters constituted solicitation of the former clients and thus whether the employee violated his non-solicitation covenant. The trial court 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 former clients, it is difficult to ascertain from this decision how a Georgia court might rule on the issue.

Charles Schwab & Co. Inc. v. Carr (Florida – Federal Court). In this case, a federal judge in the Northern District of Florida held that the plaintiff, Charles Schwab & Co. (“Schwab”) did not show the defendants engaged in solicitations, rather than mere announcements, when they corresponded with clients to notify them of their departures from Schwab. 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.”

Likewise, in Neuberger Berman LLC v. Strochak, a federal judge in the Southern District of Florida held that “[m]erely announcing that a financial planner has joined a new firm is not solicitation.” Also, in Sanford Bernstein & Co., Inc. v. Brief, another federal judge in Florida found that the former employer 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. 

In Charles Schwab & Co., Inc. v. McMurry, a federal judge in the Middle District of Florida found that sending out announcements and following up with telephone calls constituted targeted contact aimed at clients in violation of a non-solicitation provision.

Compass Bank v. Hartley (Arizona – Federal Court).  In this case, a federal district court in Arizona found that an announcement by a former bank employee constituted solicitation in violation of a non-solicitation covenant. The Arizona judge found that the letter constituted a solicitation because it targeted specific clients and contained contact information initiating customers to call, email or write.

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.   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 because the announcements of new employment were “addressed personally to customers” and contained a discount, they constituted personal solicitations. 

Of significance, the judge also 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 pre-addressed 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. 

Hilb, Rogal & Hamilton Ins. Servs., Inc. v. Robb (California). 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 this case, 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.” 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.”  Thus, the court held the former employee lawfully informed some of his former employer’s clients of his change in employment. 

As the cases above demonstrate, always exercise caution when deciding whether to send an announcement about a change to customers or clients. Above all, be certain to seek counsel before sending out announcements.