Protect Yourself: Noncompetion and Nonsolicitation Agreements in Georgia
In the world of medical equipment sales, Ricky Roma was a nobody when your company hired him. He had no sales experience. Ricky didn't know the difference between a respiratory aid and an orthopedic one, and he wasn't particularly well-connected. But he was young and eager, and you thought you could turn him into a real-deal salesman. You decided to invest in him.
You gave him a five-figure signing bonus and an above-market salary. You assigned him a sales mentor from within the company and an exclusive sales territory in which you and your other employees have developed goodwill for decades. You sent him to seminars and conferences and literally opened your book of business to him: customer names, addresses, telephone numbers—a treasure-trove of information. You didn't just prepare him to succeed; you gave him the playbook, paid him to read and follow it, and molded him into a top performer. It cost you time, hundreds upon hundreds of hours compiling the information and providing the in-house training that transformed Ricky from a know-nothing college kid into a sales superstar.
But at a recent conference (for which you paid), Ricky ran into the CEO of your chief competitor at the hotel bar. The two hit it off, and the CEO offered Ricky a job with his company with a 25% salary and commission raise. Ricky accepted the offer, left you high and dry, and to make matters worse, continued working his old territory, tapping into the extensive information and training you provided him early in his career and calling upon the very customers he serviced as your employee. Isn't this unfair? Isn't this unfair competition? What can you do? What could you have done?
1. Can you stop a former employee from unfairly competing against you on behalf of a competitor?
Yes. Under certain circumstances, you can prevent a former employee from competing against you using a noncompetition agreement. And you can almost always prevent a former employee from soliciting your customers with whom the employee had material contact during his employment using a nonsolicitation agreement. These two agreements are part of a larger family of employment contracts known as restrictive covenants. They are typically packaged together with a nondisclosure agreement, under which the employee agrees to not reveal your confidential business information and trade secrets for any purpose unrelated to your business, to provide your company the maximum level of protection against unfair competition.
A noncompetition agreement generally restricts the employee from performing similar work on behalf of anyone or any company other than the employer, for a specific period of time, within a specified territory (geographic area). A nonsolicitation agreement typically prohibits the employee from soliciting any customer with whom the employee had material contact during his employment with an eye toward providing competitive services or goods to the customer on behalf of anyone or any company other than the employer for a specified time period.
If you were a prudent employer, you would have required Ricky Roma to sign a noncompetition/nonsolicitation agreement when you hired him or at some other point during his employment. Without one, you have no contract-based defenses to Ricky's (or his new employer's) poaching your customers, and you certainly cannot stop him from working as a salesman for your competitor.
2. You said that you can prevent unfair competition "under certain circumstances." What are those circumstances? Do nonsolicitation agreements work the same way?
The law recognizes that some former employees pose a danger—specifically a danger of unfair competition—that others do not. Think about it: in all likelihood, your key salesperson is more valuable to your chief competitor than your maintenance man, and your CFO is more valuable than your bookkeeper. The law gives you what you need to protect yourself from unfair competition by higher-level, more "valuable" employees, but doesn’t necessarily allow you to restrict the post-employment activities of everyone in your company.
In Georgia, agreements that restrict an employee's ability to work for a competitor after his employment ends will be enforceable only against those employees who, while employed,
(A) customarily and regularly solicited customers or prospective customers; customarily and regularly engaged in making sales or obtaining orders or contracts for products or services to be performed by others; and had a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision of the department; customarily and regularly directed the work of two or more other employees; and had the authority to hire or fire other employees or had particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or
(B) performed the duties of a “key employee” or of a “professional.”
Not every agreement between an employer and a covered employee will necessarily be enforceable, however. For example, regardless of your noncompetition/nonsolicitation agreement said, you could not actually restrict Ricky Roma from competing against you "anywhere in the United States" if he worked for you exclusively in Georgia, and you could not restrict him from competing against you "anywhere in Georgia" if his territory for you included only Clarke County, Georgia, and the counties contiguous to it. Those hypothetical geographic limits would be unreasonably broad, and Georgia courts will not enforce a restrictive covenant, unless it is reasonable in time, geographic area, and scope of prohibited activities.
To the chagrin of HR professionals and business executives across the state, "reasonable"ness is not a mathematical equation or scientific formula. It is not precise or certain. There are no brightline rules that say, "If x, then y." It may be wholly reasonable to restrict one employee from working for a competitor anywhere in Georgia, but grossly unreasonable to impose a statewide restriction on another. But that doesn't mean that this is all a guessing game. To the contrary, when asked to decide whether a particular covenant is reasonable, Georgia courts will presume the reasonableness (a) of a time period of two or less years (and that periods of more than two years are unreasonable), (b) a geographic territory covering the area "where the employee is working at the time of termination,” and (c) a scope that corresponds with what the employee was doing "within two years prior to his termination." Activities, products, or services are sufficiently described if a reference to them is provided and qualified by the phrase “of the type conducted, authorized, offered, or provided within two years prior to termination” or similar language containing the same or a lesser time period.
Nonsolicitation agreements, which are typically designed to prevent customer poaching, are even easier to enforce than noncompetition agreements. Generally, so long as the nonsolicitation provision limits an employee from soliciting or attempting to solicit business from customers (including prospective customers) with whom the employee had material contact during his or her employment, the covenant will be enforced for the time period stated. The agreement doesn't have to contain a geographic area or apply to only particular types of products or services. And, unlike a noncompetition agreement, a nonsolicitation agreement can be enforced against any employee.
3. My employees signed noncompetition and nonsolicitation agreements a few years ago. Is there any reason to have them a sign a new one?
Yes. Restrictive covenant agreements signed after May 11, 2011, are governed by the Georgia Restrictive Covenants Act (RCA). Agreements signed before November 3, 2010, are subject to the old law, and agreements signed after November 3, 2010, but before May 11, 2011, are also likely subject to the old law. As a practical matter, the difference between the old law and the new law is likely the difference between unenforceability and enforceability.
Before the Restrictive Covenants Act, Georgia courts had a strong pro-employee bias in interpreting restrictive covenant agreements. Under the old law, they routinely rejected noncompetition provisions, and when the noncompetition provision fell, the nonsolicitation provision fell with it. Unlike the majority of other states, a Georgia court was not allowed to "blue pencil," or modify, the noncompetition or nonsolicitation provision to salvage its enforceability. But the new law expressly allows it. The practical importance of this allowance, as well as of the built-in presumptions identified in the previous section, cannot be overstated: employees are no longer free in Georgia to effectively ignore restrictive covenants simply because they may be slightly overbroad in one way or another.
4. What happens if a former employee is breaching his agreement? What rights do I have?
If you have an enforceable noncompetition and nonsolicitation agreement and your former employee breaches it, then you would be entitled to any remedy that the law affords an injured party in any breach of contract case, including injunctive relief, money damages, and in some cases, attorneys' fees. Put differently, if Ricky is working for your competitor in a territory in which he worked for you, then the Court has the power to stop him from so working. If Ricky has poached your customers in violation of the nonsolicitation agreement and caused you economic harm, then you can potentially recover a money judgment against him to compensate you for your loss.