The implied non-solicitation agreement by S. Craig Panter

Can a non-compete agreement be implied?

Implied Non-Solicitation Agreements by S. Craig Panter

The implied non-solicitation agreement.

In a previous post, we looked at written non-compete agreements and here about non-solicitation agreements. Today, we examine the concept of the implied non-solicitation agreement.

How can the law “imply” the existence of an agreement?

Mississippi courts have repeatedly stated that they will not create a contract that the parties did not make themselves.

Yet, when parties do enter into a written contract, the courts may imply certain additional terms even though the parties did not write those terms into the contract. A good example of this is the implied covenant of good faith and fair dealing.

In Mississippi, almost all contracts are deemed to contain an implied covenant of good faith and fair dealing. See, e.g., Miranda v. Wesley Health System, LLC, 949 So.2d 63 (Miss. Ct. App., 2006).

Good faith means “the faithfulness of an agreed purpose between two parties, a purpose which is consistent with justified expectations of the other party.” Ravenstein v. Community Trust Bank, 141 So.3d 396 (Miss. Ct. App. 2014).

Put another way, a party to a contract:

-must refrain from making it difficult for the other party to receive the benefits of the contract, and

-may have to take some affirmative steps to cooperate in achieving the goals of the contract.

Cenac v. Murry, 609 So.2d 1257 (Miss. 1992).

Does a contract for the sale of a business contain an implied non-solicitation provision?

Let me state at the outset that I am unaware of any Mississippi court case holding that a contract for the sale of a business contains such a provision. But, I contend such is true. Let me explain.

Assume Seller enters into an agreement with Buyer to sell an ongoing home maintenance business. The business has about 100 regular, recurring customers.

Now, if Buyer is paying attention, he will have Seller sign an agreement that prohibits Seller from opening a new, similar business and then going after those same customers.

But, what if Buyer fails to get such an agreement? Can Seller solicit those customers?

I say “no” because the benefits Buyer expected to get from the sale was the ongoing business from those customers. If Seller tries to solicit them, I contend Seller has breached the implied covenant of good faith and fair dealing. So, in that sense, I argue that the contract contained an implied non-solicitation provision.

I would also reach the same conclusion if Seller had, for example, signed a two-year non-compete agreement. After the two years pass, Seller should be free to compete in the open marketplace. Seller should not, however, be allowed to go after the same customers whose business he sold to Buyer (and for which he was paid).

Of course, it is far better to have a written non-solicitation provision in the contract.

Panter Law Firm, PLLC, 7736 Old Canton Road, Suite B, Madison, MS 39110