Non-Compete Q&A

ON NOVEMBER 2, 2010, GEORGIA VOTERS APPROVED A CONSTITUTIONAL AMENDMENT THAT HAS DRAMATICALLY CHANGED THE LAW ASSOCIATED WITH GEORGIA NON-COMPETE AGREEMENTS. GIVEN SEVERAL RECENT COURT DECISIONS, THESE CHANGES APPLY ONLY TO AGREEMENTS ENTERED INTO ON OR AFTER MAY 11, 2011. FOR AGREEMENTS ENTERED INTO PRIOR TO THIS DATE, THE “OLD LAW" REGARDING GEORGIA NON-COMPETE AGREEMENTS STILL APPLIES. THE FOLLOWING ARE FREQUENTLY ASKED QUESTIONS AND ANSWERS THAT, AS INDICATED, ARE APPLICABLE TO AGREEMENTS ENTERED INTO PRIOR TO MAY 11, 2011 UNDER THE "OLD LAW", AND AGREEMENTS ENTERED INTO SUBSEQUENT TO MAY 11, 2011 UNDER THE "NEW LAW".

Please note that the law of Georgia and other states in this area is often very complex. Thus, the following should not be construed as legal advice or relied upon in taking any action relative to the subject matter. Consultation with a non-compete attorney such as Atlanta, Georgia non-compete lawyer Dave Roberts regarding the specifics of your case should be sought by employers and individuals prior to making any decisions in this area that could have adverse legal and financial implications.

1. What is a non-compete agreement? (What are the differences between and among non-compete, non-solicitation and confidentiality/non-disclosure provisions)?

Both under the Old and New Law, attorneys often use the term "restrictive covenants" to describe four (4) main types of provisions commonly found in employment agreements - (1) non-compete provisions, (2) non-solicitation of customers provisions; (3) non-solicitation of employees or "anti-raiding" or "no-hire" provisions; and, (4) confidentiality or non-disclosure provisions. These provisions are sometimes collectively referred to as "non-compete" agreements by lay persons. In fact, a non-compete provision is quite different from a non-solicitation or confidentiality provision and vice-versa. Georgia courts readily distinguish non-compete agreements from customer and employee non-solicitation provisions and confidentiality/non-disclosure provisions.

Non-compete agreements are primarily deigned to restrict a person from competing against his or her former employer by starting his own business or working for a competitor in the same field as his former employer. An employee could breach an enforceable non-compete agreement by simply holding a job with a competitor even if he or she doesn't solicit or take a single customer from his or her former employer. A covenant not to compete normally is designed to protect the employer's investment of time and money in developing the employee's skills in addition to other “protectable interests” of the employer.

A covenant not to solicit customers is designed primarily to protect the employer's investment of time and money in developing customer relationships and prohibits an employee from soliciting the employer's clients subsequent to their termination. Unlike non-compete agreements, non-solicitation agreements (standing alone) do not generally restrict a former employee from working for a competitor in a given capacity. For example, a person bound only by an enforceable customer non-solicitation provision could possibly sell insurance for herself or for a competitor of his or her former employer for as long as he or she doesn't sell insurance to former customers of his or her former employer with whom the employee had contact while working for the former employer.

Non-solicitation of employee provisions, no-hire or anti-raiding provisions are designed to prevent former employees from soliciting, hiring or inducing other employees to leave the former employer and work for a competitor. Confidentiality or non-disclosure provisions are frequently used in conjunction with non-compete and non-solicit agreements. They protect a business against a current or former employee disclosing confidential, proprietary or trade secret information.

2. Are non-compete provisions enforceable in Georgia?

OLD LAW

Yes. But under the Old Law it was and is very difficult to do so. 85-90% of such agreements we review are, in fact, not enforceable. While Georgia has long been considered to be a very "pro-employer" state, Georgia courts long disfavored non-compete agreements and applied "strict-scrutiny" to such provisions executed in the context of an employer-employee relationship. The enforceability of a non-compete agreement in Georgia under the Old Law most often depends on the language of the agreement being in precise conformity with the law, and the circumstances in which the agreement was executed. Notably, under the Old Law the unenforceability of any part of a non-compete agreement would unquestionably render all parts of the non-compete unenforceable and would result in the automatic invalidity of any accompanying customer non-solicitation provision (and in some decisions accompanying employee non-solicitation provisions). The bottom line is that there are many, many loopholes in Georgia under the Old Law that will invalidate Georgia non-compete and customer non-solicitation provisions . Accordingly, companies and individuals attempting to draft, enforce, contest or interpret Georgia non-compete and customer and employee non-solicitation provisions should consult with a qualified attorney such as Atlanta, Georgia non-compete attorney Dave Roberts.

In a nutshell, the enactment of Georgia's new Restrictive Covenant Act (the "RCA") has had the effect of making it easier for employers to enforce all types of restrictive covenants. One of the primary reasons for this is that the New Law specifically allows court's to "modify" restrictive covenants under certain circumstances to bring them into acceptable parameters of enforceability. This term is commonly referred to as "blue-penciling". A more thorough discussion of blue-penciling rules under the Old and New Law is set forth below. Keep in mind, however, that even under the more liberal approach to enforcement that the New Law has created, Georgia non-compete agreements and other restrictive covenants can still be invalidated by a court. Therefore, employers and employees alike should seek legal advice from a Georgia non-compete attorney such as David Allen Roberts before making any assumption on enforceability issues even under the New Law.

3. What specific requirements make a non-compete provision enforceable in Georgia?

Under both the Old and New Law, to be enforceable in Georgia, a covenant not to compete must first and foremost protect a legitimate business interest and be reasonable in terms of time, geographical area, and the scope of activity to be restrained. While there are other requirements for enforceability including a general requirement of "reasonableness under the circumstances," these are the primary areas of inquiry by a Georgia Court in determining facial enforceability.

4. If a non-compete agreement is found to be unenforceable by a Georgia court, can the court modify or "blue-pencil" the non-compete to make it enforceable?

OLD LAW

No. Unlike most other states, under the Old Law, Georgia will not "blue-pencil" a non-compete provision to bring it into conformity with the law. An exception to this rule arises in the context of a non-compete agreement executed in connection with the sale of a business.

NEW LAW

Georgia Courts unquestionably have the power under the New Law to blue pencil overly broad covenants in certain circumstances. However, what remains an open question of law because of an arguable ambiguity in the New Law is whether a court can re-write an overbroad covenant (by adding or changing terms, etc), or whether a Georgia court's blue-penciling power is limited to simply striking through unenforceable provisions and enforcing the remainder of a covenant (if it remains enforceable after the severing of bad terms).

5. Are there different standards for determining the enforceability of non-compete agreements executed in the context of a partnership agreement or the sale of a business?

OLD LAW

Yes. While Georgia courts apply "strict scrutiny" to non-compete agreements executed in the traditional employer-employee setting, a "middle-level" scrutiny is applied in the context of a partnership agreement and "lesser scrutiny" is applied in the context of a non-compete executed in conjunction with the sale of a business. In fact, under the Old Law, a Court could blue-pencil an overbroad covenant entered into in the context of a sale of business (although a Court's powers to do so is limited under the Old Law to simply striking through unenforceable provisions and enforcing the remainder of a covenant if it remains enforceable after the severing of bad terms).

NEW LAW

Under the New Law, the level of scrutiny applied to a covenant depending on the context in which it was entered is not as an important of a consideration as it was under the Old Law. However, there are some different rules under the New Law regarding time components, etc. depending on the context in which the covenant was entered.

6. Is there a statute or law "on the books" in Georgia that governs the enforceability of non-compete agreements?

OLD LAW

No. While the Georgia Constitution prohibits contracts which may have the effect of lessening competition, under the Old Law Georgia did not have a "non-compete statute" like other states such as Florida. Instead, for agreements entered into prior to May 11, 2011, Georgia non-compete law is governed by the "common law" (previous decisions of Georgia courts). Accordingly, it is imperative that any attorney representing clients in Georgia non-compete law matters be very familiar with the relevant cases in this area because there is no statute under the Old Law to refer to.

NEW LAW

While the New Law is a statute, it is not a very well drafted one and it is full of ambiguities and unanswered questions. Without a greater understanding of the law in this area, simply reading the New Law statute may not yield answers to complex legal questions involving Georgia non-compete agreements under the New Law. It is therefore important for employers and employees alike to consult with an attorney well-versed in this area of the law such as Atlanta non-compete attorney Dave Roberts when faced with legal issues implicating Georgia's new non-compete law.

7. Can an employee be fired for refusing to sign a non-compete agreement after he or she begins employment? In such a case, can the non-compete be held to be enforceable?

Georgia is a strong "at-will" employment state meaning that absent an agreement for employment for a specified period of time, a Georgia employee can be fired for a good reason, a bad reason or no reason at all so long as the termination is not based on race, sex, religion or other protected classes or circumstances. Thus, in Georgia, an employee can be fired for refusing to sign a non-compete agreement under both the Old and New Law. Interestingly, however, the New Law specifically allows Courts to take into consideration the economic hardship that would result from the enforcement of a Georgia non-compete agreement against an individual. Therefore, the fact that an employee was involuntarily terminated could be an issue in certain cases with regard to questions of judicial enforcement.

8. If an employee is required to execute a non-compete agreement after he or she begins employment, must the employer provide the employee some additional "consideration" in exchange for the non-compete agreement?

No. As noted above, and under both the Old and New Law, Georgia employers can insist that employees execute non-compete agreements after the employment relationship begins. In such case, an employer in Georgia does not have to provide additional consideration as the court will consider the employees "continued employment" to be adequate consideration. This is not the law in other states such as North Carolina.