Did Non-Solicitation Agreements just get more complicated in Michigan?
So, you just left a firm you can’t stand anymore for a better one. You talk with your clients and they move to your new firm. Did you violate your non-solicit agreement with the old firm if your clients contacted you first? A recent Michigan Court of Appeals decision may have changed the answer to this question.
Non-Solicitation Agreements
Your non-solicitation agreement is a prohibition against soliciting clients your firm believes are its own away from it after you move on to your next firm.*
It’s all about asking someone – your clients – to do something. Follow you.
Your firm’s non-solicitation agreement will include restrictions on time and geographical area and an agreement by you to not to violate the agreement for the benefit of a third party – your new firm.
Does It All Come Down to Who Initiates Contact?
“Solicitation” is defined a little bit differently by every state’s courts. Over the years, the common wisdom has been that you can avoid violating your non-solicitation agreement if 1) the client initiates the contact with you or 2) you put out a general announcement about moving to your new firm or sent a letter to clients just letting them know where you went and how to reach you, with nothing more.
Seems easy, right? Maybe not in Michigan anymore.
In Total Quality, Inc. v. Fewless, Case No. 346409 (Mich. Ct. App., July 9, 2020) the Michigan Court of Appeals found that former employees are not shielded from enforcement of a non-solicitation agreement just because customers initiate contact. The former employees’ agreement in Total Quality contained a non-solicitation clause stating that they may not “directly or indirectly call on, solicit, or service any customer… of [the employer] in order to induce or attempt to induce such Person to cease doing business with [the company] …”
The former employer claimed that the former employees violated the non-solicitation agreement by responding to a client’s uninvited request to answer an RFP. The former employees argued that the terms of the non-solicitation agreement “did not preclude them from responding to requests initiated by customers.” They contended that they did not improperly solicit the customer because they did not initiate the contact, but rather only responded to the contact and the invitation to respond to the RFP. They argued that to rule that a response to an uninitiated contact was prohibited, it would convert the non-solicitation provision to a non-competition provision.
No Free Pass Even if Customer Initiates Contact/The New “Active Role” Test
The Court disagreed and found that accepting business from a customer initiating contact can be unlawful solicitation if the evidence shows the accused party “assumed an active role in [the customer’s] decision making process.” The Court considered that if the purpose of the employees’ conduct was to cause that business relationship to end, the employees had taken affirmative steps to take away the customer’s business. Bottom line, it doesn’t matter who initiates contact.
The Court also found that the same conduct that violated the non-solicitation agreement also constituted an improper tortious interference with the former employer’s relationship with its customers as the former employees knew that their actions were substantially certain to interfere with the business relationships.
Yipe.
The Takeaway
After Total Quality, Inc. v. Fewless, employees can no longer shield themselves from liability just by not initiating contact. You now have to make sure that you do not take an “active role in the client’s decision-making process” to move business to your new firm.
Considering your big move? Find out more how I can help with moving your book of business. Call me at (832) 370-3908 or email me to talk it through.
*In future blogs, I’ll tackle the issue of your clients belonging to you and clients belonging to your firm and how those fights shake out.
