What is a Non-Compete Contract?
An important part of an employment contract offered to a job applicant is the non-compete agreement. It is a contract provision that prohibits an employee from working for a competitor in the same area or the same geographical location. Such an agreement is typically part of an employment agreement. The purpose of this is to protect a company’s interests in the invention or product the employee creates. Without this clause in an employment agreement, an employee will be free to disclose sensitive or proprietary information to a competitor and can be expected to capitalize on information gained from the company. Companies require non-compete agreements as a way of guarding essential trade secrets, customer lists and other types of confidential data .
A non-compete agreement is created to protect an employer from letting an employee gain access to sensitive material and using that material to the detriment of the company after leaving, whether deliberately or unintentionally. When brief in scope, a non-compete agreement may not limit employment opportunities for a person within that field. When broad in scope, an employer can restrict the range of employment opportunities such that the agreement becomes a tool of economic sabotage against the employee. An effective non-compete agreement is created with unlimited geographic scope in the jurisdictions or locations where the company competes with others. In broad scope situations, an employee could be prohibited from obtaining any employment in the same industry.
Law and Practice in Georgia
In Georgia, non-compete agreements are subject to specific statutory requirements pursuant to the 1990 Georgia Restrictive Covenants Act, O.C.G.A. § 13-8-50, et seq. To be enforceable, non-compete agreements must be reasonable in both time and territorial scope. They must also serve legitimate business interests including but not limited to trade secrets, confidential information, goodwill and threats of unfair competition. Further, the employer must advise the employee to consult with counsel before entering into the agreement. Any agreement that restricts more than necessary must be revised or declared unenforceable in whole or in part.
Georgia courts are reluctant to rewrite contracts to make them enforceable, and will generally do so only where the parties have agreed to a blue-pencil clause allowing for that. "Blue pencil" language should be added in all non-compete agreements, and states that if any portion of the agreement is invalidated, that the court may sever that clause or portion and enforce the rest and mold the agreement to avoid invalidity.
Georgia courts also have the discretion to award attorneys’ fees to the prevailing party in any action seeking enforcement of a covenant not to compete. Under O.C.G.A. § 13-8-54:
The section of this chapter enabling the court to award attorneys’ fees does not make the prevailing party in the action for equitable and declaratory relief entitled to such an award of attorneys’ fees as a matter of right and authorizes the trial court to exercise discretion in determining whether such an award is appropriate under the facts and circumstances of the case.
Essential Elements of a Georgia Non-Compete
A non-compete agreement, sometimes referred to as a covenant not to compete, functions to prevent an employee or former employee from competing with their employer both during and after the employment relationship. As a general rule, Georgia courts have enforced covenants not to compete but only if the covenant is reasonable under the circumstances and otherwise valid. First, to be valid, a non-compete must contain a reasonable time limitation of a finite amount of time. Second, a non-compete must also have a reasonable geographical limitation over which access to certain information and knowhow was gained. Third, when reviewing the non-compete agreement, the business interest of the employer must outweigh the harm to the employee resulting from the restrictions placed on him. Fourth, a non-compete must be in writing and signed.
Common Issues and Disputes
Despite the general enforceability of non-compete agreements in Georgia, several legal issues and disagreements may arise.
Overly Burdensome and Unreasonable Covenants Courts will generally honor a covenant not to compete if it is well-defined and limited, only being as restrictive as is necessary to protect the employer’s interests. Courts might go so far as to refuse enforcement of a noncompete that overreaches into territory more than what is necessary. The argument here is that for every business there is somewhere else the employee can go that will not place them in competition with the employer. The Georgia Supreme Court has acknowledged this saying: "So long as there is work in this country there will be competition, and under those circumstances we cannot find a contract with a restriction on competition unreasonable on its face."
Tortious Interference with Contracts or Business Relations Interference with a non-compete agreement can occur when a third party or an employer hires an employee known to be bound by a valid non-compete agreement. The third party has then interfered with the terms of the legally binding contract between the employee and the employer where the employee was going to go to fulfill their obligations. This is rare, but there are times where this happens and the only rights the exiting employee has are against the potential new employer who may very well be unsuspectedly entangled in the litigation. The original employer may still have a claim against the potential new employer and in turn, the new employer has a claim against the existing employer analogous to the tortious interference claim the employee may have against the original employer. This is a rare occurrence though as this requires a heavy burden to show knowledge on the part of the new prospective employer that the employee was even subject to the non-competition agreement, yet alone that they had any information that the agreement was burdensome. Otherwise, there is no real "tortious" interference with the contract or relationship.
Non-Compete with an Agreement Term Date Exceeding Under Georgia law, non-compete restraints are covenants and thus must be in writing, made in conjunction with a contract giving rise to the agreement as a matter of consideration, and may not have a term date longer than one year. An example of this would be if you are a nurse or employee and you enter into an employment agreement with a hospital or other medical facility that places a restriction on your ability to work at certain other facilities or areas of the state for a period of time post-employment, but the time limit exceeds 1 year. It is therefore unenforceable under Georgia law as a matter of public policy.
Common Questions and Answers What do I do if I have received a non-compete agreement? If you receive a non-compete agreement, you may want to consult with an experienced trade secrets attorney. Ensure that you understand the terms of the non-compete agreement and what it allows or disallows generally.
If I’m in litigation over an overly burdensome non-compete agreement, what are my defenses? If you are in litigation regarding an overly burdensome non-compete agreement, there are several legal defenses that may be applicable to your case. You may be able to show that they failed to provide mutual consideration to enforce the non-compete agreement. Show there is a lack of knowledge or intent of the potential new employer.
Recent Legal Precedents and Decisions
When it comes to protecting sensitive information or client relationships, Georgia employers should be aware that the Georgia legislature has provided special rights to employers when their well-drafted non-compete provisions are enforceable.
One common tactic used by former employees who are subject to enforceable non-compete agreements in Georgia is to claim damages from the employer for allegedly "flipping the switch" or no longer having a business "to live-off of" during the two weeks they are on unpaid leave to honor the non-compete provisions. The Georgia legislature has amended its law and provided that an employer is not liable for monetary damages or other relief against a former employee during the period before a court determines an employee’s non-compete agreement is unenforceable.
In a recent case , the Georgia Court of Appeals held that the trial court had improperly refused to enforce a non-compete agreement. In Effective Immediately, LLC v. Gladney, an Atlanta Judge ordered enforcement of a non-compete agreement with an out of state business that engaged in "deceptive and predatory" sales tactics over the internet. The trial court had refused to enforce the agreement, despite the Georgia legislature’s 2011 amendment providing that covenants that are more than six months, but less than two years in duration are enforceable "in all instances." The future of the anti-competitive restraint was left for a jury and damages were awarded against the plaintiff.
Effective Negotiation of Non-Competition Terms
When entering into employment terms, both parties must be cognizant of their rights and obligations under a Georgia non-compete agreement. For employees, these contracts can result in financial hardship and a stunted career. For employers, a strong non-compete agreement tailored to a business’ specific needs can prevent employees from taking intellectual property and trade secrets to a competitor. Here are some tips for negotiating Georgia non-compete agreements.
- Employees should consult with an attorney before signing any employment contract. It is important to understand the implications of the Georgia non-compete agreement. Having someone knowledgeable read the contract before you sign is key.
- Employees should ask for a copy of the Georgia non-compete agreement at the earliest opportunity. After you have signed the contract, it can be near impossible to successfully void the Georgia non-compete agreement if the employer is not following its terms.
- Employers should seek legal counsel to tailor the non-compete clause for their business. A skilled attorney can help ensure that the agreement is enforceable in case of a breach.
- Both parties need to compensate one another appropriately to fulfill the legal requirements of a non-compete agreement. Employees should negotiate severance pay before starting a new job. If the employer is not offering anything in exchange for the restrictive covenant, it will be unenforceable in Georgia.
Possible Alternatives to Non-Compete Agreements
Many employers are under the mistaken impression that thee is no other way to protect their business. Thankfully, that is not true. There are a variety of other restrictive covenants that may be used in certain circumstances.
One such alternative is a non-disclosure agreement (NDA), which works well in industries where trade secrets are central to a successful business model. With an NDA, the employee does not have to agree to give up their hard-fought right to work in exchange for their former employer’s ability to stifle their future opportunities. The employee merely agrees not to disclose certain information related to their employment that might be valuable to a competitor.
NDAs work best when they are narrowly tailored to prohibit the disclosure of information that the former employer genuinely has a protectable interest in. This is particularly true when the NDA is incorporated into an employment contract. Industries that find NDAs useful include restaurants, manufacturing, and many technology companies. NDAs have no applicability in industries that involve personal relationships and/or branding that consumers associate with particular employees (most notably, actors, professional athletes, entertainers, and anyone who is hired partly for their name).
Non-solicitation agreements are another type of restrictive covenant. These agreements provide that a departing employee may not "solicit" customers or other employees away from the former employer. These agreements are often accompanied by a liquidated damage provision, which specifies the damages to be paid in the event of a breach. Geographically, non-solicitation agreements may span an entire state, a region, or they may even be limited to a particular city or county. The underlying reason for the need for a non-solicitation agreement is to protect the employer from losing its client base and its valuable employees- at least until the employer can recruit them back into its fold.
When to Consult an Attorney
It is vital to get the advice of a qualified Georgia employment lawyer when drafting, reviewing or disputing a non-compete, as Georgia courts and juries are prone to enforce non-competes against employees even if employers have been unreasonable in their drafting. Likewise, defense lawyers are generally quite skilled at trying cases involving non-compete disputes, so if an employer /employee dispute looks likely and the stakes involved are high, a strong defense will be necessary . Consulting with an experienced Georgia non-compete lawyer before entering a non-compete is equally important. Many busy managers and business owners don’t give much thought to non-competes until after a non-compete contest has begun. Seeking legal advice before entering into a non-compete is critical, as many of the positions taken by lessors and employers are helpful to get better terms when negotiating the agreement, but potentially harmful later, as the agreement is interpreted by others.
