One of the common types of restrictive covenants that Michigan courts have held are enforceable in employment (and other) contracts are so-called “non-solicitation” covenants. Typically, non-solicitation covenants prohibit an employee (or shareholder, member, director) of a company from soliciting any of the company’s customers (or employees, suppliers, distributors, etc.) after that employee stops working for the company. Recently, the Michigan Court of Appeals, in a published decision, took on the issue of what it means to “solicit” a customer in the context of a non-solicitation covenant. Total Quality, Inc. v. Fewless, ____ Mich App. ____; ____ NW2d _____ (Docket No. 346409) (July 9, 2020).
In Total Quality, the defendant-employees signed an employment contract with the plaintiff-company in which the employees promised that they would not, for a period of two years after leaving their employment with the company, “directly or indirectly call on, solicit, or service any customer, supplier, distributor, or other business relation of [the company] in order to induce or attempt to induce such Person to cease doing business with [the company].” Id. at p. 4.
The defendant-employees stopped working for the plaintiff-company and formed their own business. Within two years of leaving the defendant-company, the defendant-employees responded to a request for proposals (“RFP”) sent to them by one of the company’s customers. The defendant-employees did not actively request the RFP from the customer; rather, it was sent to them and they responded to it. The RFP and response resulted in the defendant-employees earning a contract with the customer. The plaintiff-company sued alleging that the defendant-employees’ response to the customer’s RFP violated the non-solicitation agreement.
The question before the Court of Appeals was whether responding to an RFP from the company’s customer was the same as “soliciting” the customer. The Court of Appeals, relying on the dictionary definition of “solicit”, said that it was. The Court of Appeals held that when the defendant-employees “responded to [the customer]’s RFP with a bid to service the lanes” they solicited the customer. Id. at p. 7. The Court of Appeals held that it was “irrelevant that [the customer] sent the RFP to [the defendant-employees] and prompted [the defendant-employees’] response, because the non-solicitation clause prohibits [the defendant-employees] from soliciting [the plaintiff-company]’s customers, which they did by affirmative action by submitting a bid to service [the customer]” Id.
This decision signals a willingness by the courts to read restrictive covenants broadly to create a large zone of prohibited conduct. Specifically, the Court of Appeals’ holding that the timing of the presentation of the opportunity to do work for the customer was “irrelevant” to whether the employees solicited the customer or the customer solicited the employees, shows a maximalist reading of the word “solicit” to encompass the creation of any business relationship between the employee and customer, regardless of how that relationship originated.
Based on this opinion, employees, shareholders, officers, directors, or anyone else bound by a non-solicitation covenant should carefully consider any relationship they enter with a customer of their former company.