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N.C. Court of Appeals Rejects Customer Non-Solicitation Restriction

    Client Alerts
  • August 15, 2019

When we talk with clients about post-employment “noncompete” agreements, this term actually encompasses a number of different restrictions. In addition to provisions that restrict the employee from working for a competitor for a period of time following employment, these agreements usually include a similar prohibition against soliciting the company’s customers for that same restricted period. Last week, the North Carolina Court of Appeals reminded employers that their failure to carefully limit customer non-solicitation restrictions will result in their invalidation.

In Sterling Title Co. v. Martin, the defendant signed a 2007 employment contract that included an agreement not to “solicit or attempt to solicit any customer or partner of the Company with whom I had contact during my employment with the Company to purchase a product or service of the Company.” In 2017, the defendant left to form her own title insurance company. Her former employer sued to seek enforcement of the contract, including the customer non-solicitation provision. The trial court dismissed the suit on the basis that the agreement was unenforceable as a matter of law, and the plaintiff appealed.

The Court of Appeals agreed with the trial court, affirming its conclusion that the restriction was unreasonably overbroad. While the covenant only lasted one year, its prohibitions applied to any client of the business, no matter how long ago that business relationship ended. Because the defendant had been employed by the plaintiff for almost 11 years, this restriction applied to customers throughout that entire time frame.

We frequently see similar language in North Carolina employment agreements, especially those more than a few years old. In order to have a chance of being enforceable, the customer non-solicitation clause should limit the restriction to (1) customers with whom the employee had material business contact or access to confidential information regarding, and (2) who were active customers of the business in the recent past, meaning within the last year or two. North Carolina courts will not modify or “reform” overbroad restrictions, and failure to carefully limit the covenants will result in their invalidation, even where the employer never attempted to enforce the agreement on that wide basis.