Employer Cannot Limit Solicitation of Unknown Future Customers, Court Says

It is common for employers who have restrictive covenants with employees in those agreements to restrict the employees, after their departure, from soliciting company customers. A recent case gave one court’s answer to the question as to how broad that restriction can be. Specifically, West Memphis Steel & Pipe, Inc. restricted two employees from soliciting the companies “past, present or prospective future customers or clients.” Two employees brought a lawsuit asking the court to determine prospectively that the restriction was overbroad and therefore unenforceable by restricting them from soliciting “prospective future” customers. A federal court in Arkansas agreed, stating that it was reasonable for a company to protect relationships in which the departed employees were involved, but not unknown and unspecified future relationships.

Regular readers will recall that state laws on non-competes and other restrictive covenants vary significantly. Perhaps the most significant variation is whether a state’s courts will modify an overly broad restrictive covenant to “make it reasonable.” Where I sit in Ohio, courts will do so. Had this case been in Ohio, a court likely would have just “revised” the language so that the company could have enforced the non-solicitation language to some extent. However, Arkansas is a state where that is not the case. In a very descriptive illustration of this principle, the court wrote:

How close a non-compete clause comes to being enforceable to being just broad enough does not matter – if it misses by an inch, it misses by a mile.

Accordingly, the company was left with no restriction at all and would be unable to enforce the covenant. This case is a good reminder that, regardless of what state you sit in (because even if you are based in a “court will modify” state, you might find yourself litigating over your agreement in another state that will not follow your state’s law, employers should work with counsel to carefully draft restrictive covenant language to maximize the likelihood of enforceability.

• RELATED TOPICS
• Customers
• Solicitation