Georgia’s Competitiveness May Depend on Reforming its Non-Compete Laws
Feb 19, 2009    Seyfarth Shaw, LLP    

For Immediate Release: February 19, 2008
Contact: Erika C. Birg
Seyfarth Shaw, LLP
ebirg@seyfarth.com

Georgia’s Competitiveness May Depend on Reforming its Non-Compete Laws

By Michael Elkon and Erika Birg[i]

With the United States transitioning to a knowledge-based economy, Georgia’s businesses have placed an increasing amount of confidential information and critical business relationships in the hands of key employees. As a result, for those key employees, businesses are turning with greater frequency to agreements to protect that confidential and proprietary information and those critical business relationships following the end of employment, such as non-compete, non-solicitation of customers, and non-disclosure covenants.

Non-compete agreements prevent key employees from competing for a certain time period in a particular geographic area following the end of their employment. Non-solicitation agreements prevent key employees from soliciting customers to move their business away from the former employer. Non-disclosure agreements prevent employees from using or disclosing an employer’s confidential information, such as customer lists or marketing plans. These covenants are designed to prevent a former employee from exploiting unlawfully a former employer’s confidential and proprietary information, intellectual capital, and critical business relationships.

Historically, Georgia has been hostile to the enforcement of post-employment restrictions. Because there is no comprehensive Georgia statute governing post-employment restrictions, judges must apply a hodge-podge of decisions from the Georgia Court of Appeals and Supreme Court in deciding enforceability of such agreements. As a result, Georgians have a hard time understanding all of the ground rules. Judges also are forbidden from “blue penciling.” This means that courts cannot enforce post-employment agreements to the extent that the agreements are reasonable. Instead, the trial courts must accept or reject the agreements as written.

Georgia’s complicated collection of cases places the state at odds with its neighbors. For the most part, Georgia’s neighbors give businesses and employees significantly greater latitude in negotiating post-employment restrictions. With the exception of South Carolina, Georgia’s neighbors also permit judges to “blue pencil.” Several states, like Florida, have enacted statutes that set parameters for such agreements.

Put yourself in the shoes of a business owner deciding whether to locate your company in Georgia or Florida. Your company is a software company that depends on high-level programmers who understand the specialized, technical aspects of the software offered. Your company also employs sales representatives to develop relationships with retailers. In Florida, you can protect your confidential information and customer relationships by asking your programmers and sales representatives to sign agreements that prevent them from soliciting customers or using confidential information after they leave your company. If, following the end of their employment, a Florida court decides that the restrictions are too burdensome on the employee, then the court will modify the restrictions to protect no more than the company’s legitimate interests.

In contrast, if your company locates in Georgia, the company’s ability to protect its confidential information and customer relationships will be limited. Under the current case law relating to non-solicitation agreements, absent a geographic restriction, former employees may be able to solicit customers about whom they learned confidential information during employment. And, even if the company has a non-compete agreement, former employees can join the company’s largest competitor, simply because the former employee will work mere steps outside of a geographic boundary set at the outset of employment And, notably, in these agreements, employers cannot address the possibility that an employee’s assigned geographic area may change during the course of employment. When confronted with the final decision on locating your software company in Tampa or Atlanta, which state might you choose?

A bipartisan coalition of state representatives are seeking to update Georgia’s approach to post-employment restrictions through HB 173. This important bill originated in a House Study Committee on Restrictive Covenants in the Commercial Arena led by Representative Kevin Levitas and is currently being heard by the Civil Subcommittee of the House Judiciary Committee, which is chaired by Representative Mike Jacobs. The committees gathered information from lawyers and business people from around the State regarding the importance of bringing clarity to the law in Georgia. The statute’s goal is to “provide statutory guidance so that all parties to such agreements may be certain of the validity and enforceability of such provisions and may know their rights and duties.” (HB 173 (proposed Section 13-8-50).) And, in particular, the committee is endeavoring to make the law fair to all concerned by ensuring that the law is not overly burdensome on employees and by empowering Georgia judges to enforce only reasonable restrictions based on the facts of a situation. It also proposes to allow the parties to agree to a reasonable list of specific competitors with whom an employee cannot work following employment in lieu of a geographic restriction.

To remain competitive in 2009 and beyond, Georgia needs a contemporary and comprehensible statute on restrictive covenants. The current state of the law hurts Georgians because it is virtually incomprehensible to lay people (and, indeed, to many attorneys). Thus, the House Judiciary Committee should finalize and pass HB 173 and send it to the full legislature for consideration.

###

[i] Ms. Birg is a partner and Mr. Elkon is an associate with Seyfarth Shaw, LLP in Atlanta, Georgia. Their practices include assisting clients with issues relating to post-employment restrictive covenants, trade secret misappropriation, and Computer Fraud and Abuse Act claims. The opinions in this article are their own and do not reflect those of Seyfarth Shaw, LLP nor do they form an attorney-client relationship or constitute legal advice.

Top of Page

Site design and programming by see see eye