BY KELBY FLETCHER
A key feature of most post-employment restraints, many employment and severance agreements, and some settlement and release of employment claims agreements is a commitment by the departing employee not to solicit and hire the former employer’s employees for a stated period of time.
Such a commitment by a departing employee to the former employer can have these consequences:
- It may impede the employer’s other employees, XYZ, in terminating their employment at-will;
- It may hinder mobility of labor;
- It may restrain trade;
- It may have the effect of reducing wages.
How can all these things be lawful? The usual response is that these potential results are “reasonable” in the overall scheme of things. But are they? The Washington Constitution and state statutes may provide answers.
Non-solicitation of employees by a former employee should be distinguished from an agreement under which the former employee is prohibited from soliciting or accepting business from the former employer’s customers. In that context, one can assert that the customers or clients of the former employer are its “property”— (itself problematic if the former employee brought to the former employer the customers that the former employer then tries to protect as its own). But note that this is not the case in a law firm, because clients are not the “property” of the firm. The client has the ultimate right to choose counsel. A law firm cannot impair that choice. (It seems odd that lawyers can draft and enforce contracts allowing their clients to do what they cannot, but I digress.)
The commitment in an employee non-solicitation agreement is by A, who was employed by B, and affects XYZ employees of B without their knowledge or consent. In other words, XYZ are prevent- ed from having an economic opportunity through A because of B’s insistence expressed in a contract with A. XYZ are potential third-party losers in the transaction between A and B.
If non-solicitation of employees in the franchise industry is pernicious, why is the practice not pernicious in other contexts?
Thus, B, the employer, can terminate XYZ at will. The termination may be due to the economic distress of B. But XYZ’s ability to terminate their own employment at will to obtain a possible benefit through A is compromised, through no agreement they have entered into with B. XYZ may have better opportunities for income, advancement in a trade or profession, or better working conditions if they work for A or A’s new employer.
One could say that the obligation of A simply not to solicit XYZ is a reasonable restraint on A’s future action. In that situation, A can make known only broad contact information and XYZ could approach A and seek employment. Nowogroski v. Rucker, 137 Wn.2d 427 n.4 (1999). Even then, however, XYZ are deprived of possible economic and other benefits that might flow from their ability to obtain other employment. And some employers propose contracts preventing A even from publicizing his contact information at his new employer generally. That, too, is problematic.
But an obligation on the part of A’s new employer not to hire XYZ, even if XYZ are not solicited by A—how is that reasonable?
Recent Washington legislation on post-employment restraints finds “that workforce mobility is important to economic growth and development.” RCW 49.62.005. This recognition of labor mobility as protected activity is important in any discussion of post-employment restraints.
The statute deals in part with non-solicitation agreements: A franchisor may not restrict a franchisee from hiring any employee of another franchisee of the same franchisor. RCW 49.62.070.
If non-solicitation of employees in the franchise industry is pernicious, why is the practice not pernicious in other contexts? Certainly this legislation does not champion non-solicitation and non-hire agreements outside of the franchise world. Instead, the statute “does not revoke, modify, or impede the development of the common law.” RCW49.62.090(b)(2). In that vein, perhaps the statute’s prohibition against non-competes for individuals earning less than the statutory threshold (now $100,000/year) gives guidance to courts and contract drafters about what would be tolerable for a non-solicitation agreement.
If nothing else, RCW 49.62 provides a useful definition of what constitutes “solicitation”: “solicitation by an employee upon termination of employment: (a) of any employee of the employer to leave the employer. …” RCW 49.62.010(5). A broad contractual provision prohibiting A from “aiding, assisting, or promoting … [XYZ] seeking other employment. …” runs afoul of the simple definition in the statute. Providing information about employment opportunities with A is not asking XYZ “to leave the employer.”
But the larger issue is this: By restricting XYZ from other employment opportunities, through the vehicle of B’s non-solicitation agreement with departing employee A, is B unlawfully restraining trade in violation of Washington Constitution art. 12, § 22, and RCW 19.86.030?
The constitutional provision prohibits “any contract … for the purpose of fixing the price or limiting the production … of any product or commodity. …” The statute declares unlawful “[e]very contract … in restraint of trade.” The Washington Supreme Court adopted those as the bases for analyzing non-competition agreements. Sheppard v. Blackstock Lumber Co., 85 Wn.2d 929 (1975). Earlier cases established that labor is a “commodity.”
Non-solicitation and non-hire agreements should be subject to even greater scrutiny under the constitution, RCW 49.62.005, and RCW 19.86.030, because they involve third parties (XYZ) not subject to the contract between A and B.
Let the common law develop and let labor freely move.