Non-solicitation of employees and customers: what it prohibits, when it is valid, and what to do when threatened with a claim

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You left a company and set up your own business, or moved to a competitor. The contract you signed years ago has a clause that prohibits you from “soliciting” the employer’s employees and customers for two years. Does this clause really stop you from bringing in a colleague, or from working with a long-standing customer who approached you? In Israel the answer is neither “yes” nor “no”. It follows from a test that the courts set for restrictions on freedom of occupation. The question is whether the clause protects something real or only blocks competition. This article explains the test, the difference between soliciting employees and soliciting customers, and what to do when a warning letter arrives. Related issues (non-compete, confidentiality and trade secrets) are covered in the linked articles and in the employment law hub.

What a non-solicitation clause prohibits, and how it differs from non-compete

A non-solicitation clause is an undertaking by the employee for the period after the employment ends. The employee undertakes to refrain from two things. One is recruiting or tempting the employer’s employees to leave (non-solicitation of employees). The other is approaching the employer’s customers or suppliers to move them to the employee or to their new employer (non-solicitation of customers). Unlike a non-compete clause, it does not prohibit working in the field, only whom you approach. Even so, under Israeli law it is a restriction on freedom of occupation, and it is examined with the same tools.

The test: legitimate interest and proportionality, the AES v. Sa’ar and Check Point rulings

There is no law in Israel that regulates non-solicitation clauses. The framework is Basic Law: Freedom of Occupation, and section 30 of the Contracts (General Part) Law, 5733-1973 (a contract contrary to public policy is void). It also includes two key rulings. The first is Labor Appeal 164/99 Frumer and Check Point v. Redguard (4 June 1999). The National Labor Court held that restricting an employee’s occupation is justified only in one of four circumstances. The first is a trade secret of the employer, which must be proved in detail, not by general claims. The second is special and expensive training that the employer invested in the employee. The third is special consideration paid to the employee for the undertaking. The fourth is a breach of the duty of loyalty and good faith. Where there is no trade secret, the court held, in essence, that the knowledge and experience an employee gained in their work are part of their skills. They may use them.

The Supreme Court confirmed this approach in CA 6601/96 AES System Inc. v. Moshe Sa’ar (28 August 2000). A restrictive clause is enforced only to the extent that it protects a legitimate interest of the employer (trade secrets, customer lists, goodwill). And it is enforced only if it is reasonable and proportionate. Some undertakings do not protect a proprietary or quasi-proprietary interest, but give the employer immunity from competition. Such an undertaking is contrary to public policy and is not enforced. What does this mean for a non-solicitation clause? It will be enforced if it protects customer relationships built with the employer’s resources, or confidential information. It will be narrowed or canceled if it is broader than that. You may need to draft a clause that will meet this test, or examine an existing clause before you leave. That is the work of legal support in the employer-employee relationship.

Soliciting customers: the customer may choose freely, the trade secret is protected

The difficulty with soliciting customers is that there is a third party here. That is the customer, who has not signed anything and may choose their service provider. So the courts distinguish between two situations. In one, the former employee initiated the approach, especially using information they took with them. In the other, a customer chose to move on their own initiative. The main legal tool is the Commercial Torts Law, 5759-1999. Section 5 defines a “trade secret” as business information that is not public knowledge and cannot easily be discovered lawfully. Its confidentiality gives a business advantage, and its owner takes reasonable measures to keep it confidential. Section 6 prohibits misappropriation of a trade secret. Section 13 allows the court to award compensation without proof of damage of up to NIS 100,000 for each tort. Is a customer list a trade secret? A customer list can be a trade secret if it meets the definition (section 5 of the Commercial Torts Law). It is not public knowledge, it cannot easily be discovered, and it gives a business advantage. And its owner takes reasonable measures to keep it confidential. A list of names that can be obtained from the internet or from an industry directory is not a secret. More in the article on trade secrets.

Soliciting employees: the duty of loyalty during employment, freedom of occupation after it

Soliciting colleagues is examined at two points in time. During the employment, the employee owes a heightened duty of loyalty and good faith. Organizing a group departure behind the employer’s back, while it still pays you, may breach this duty even without a clause in the contract. After the employment ends, the clause will be enforced according to the same test. Does it protect a legitimate interest, for example a team in which the employer invested special training? And is it limited in time and in the group it covers? Even then there is a limit: the colleagues themselves have freedom of occupation, and they may leave and join whomever they wish. A clause that protects colleagues you worked with directly, for a fixed period, is one thing. A ban on “anyone who ever worked at the company” is different. On the scope of the duty of confidentiality after leaving, see the article on employee confidentiality.

In breach? What the employer can demand, and what it must prove

The usual remedies are an injunction (temporary and then permanent) that prohibits continuing to approach customers or employees, and a claim for damages. To obtain them, the employer must show four things. First, a valid clause under the test above. Second, an actual breach: an approach initiated by the former employee, not just the fact that a customer left. Third, a causal link between the breach and the damage. Fourth, the amount of the damage, such as lost income from a specific customer or the cost of recruiting a replacement. When a trade secret was misappropriated, compensation without proof of damage can also be claimed under section 13 of the Commercial Torts Law. An application for a temporary injunction must be made quickly: a delay of months harms the chance of obtaining it. The dispute, even after the employment has ended, is heard in the Regional Labor Court: this is how the proceedings work.

Frequently asked questions

I signed a two-year non-solicitation clause. I left, and a long-standing customer contacted me on their own: may I work with them?

An approach initiated by the customer is not “solicitation” in the usual sense of the term, and the customer may freely choose their service provider. The risk shifts to you if you used confidential information of the previous employer, such as prices, commercial terms or a list gathered with effort. It also shifts if you approached the customer first. Document that the approach came from the customer, and avoid using any document or file you brought from your previous job.

I’m setting up a startup and want to bring in two former colleagues: is that a breach?

It depends on the timing and the way. Recruiting colleagues while you are still employed, behind the employer’s back, may breach the duty of good faith and loyalty that applies to an employee. This is so regardless of the clause. After you leave, a non-solicitation of employees clause will be enforced only if it protects a legitimate interest and is limited in time and in the group it covers. And the colleagues themselves have freedom of occupation. Advertising a job openly and equally is different from a targeted approach to a whole team as soon as you leave. In the second case, the court is stricter.

I received a warning letter from my previous employer with a large financial demand: what do I do?

Do not sign any undertaking and do not reply in a hurry. Check exactly what is claimed (soliciting employees, soliciting customers or using a trade secret) and what the evidence is. The employer bears the burden of proving a trade secret, special training or special consideration. And the law caps the amounts of compensation without proof of damage under the Commercial Torts Law. Write an organized reply that documents the circumstances of your departure and the source of the contact with the customers. It is important even if proceedings are filed.