New & Events
The Tide Turns for Non-Compete Employment Clauses
Can they really keep me from working there?
Corporate employees, particularly in the technical fields, worry that the confidentiality and non-compete clauses they sign with employers could prevent them from changing employers at will. Recent decisions in the Georgia Supreme Court are good news for employees who want to compete freely in the employment marketplace.
The tide turns for non-compete employment clauses
Post-employment non-compete clauses are somewhat standard in employment contracts. These provisions are designed to protect companies from employees taking valued clients and highly specialized industry expertise, developed at the expense of the business, to competitors. Georgia courts, however, have been notorious in their reluctance to enforce these covenants, even when they are freely entered into by the company's employees.
A recent decision by the Georgia Supreme Court, Palmer & Cay of Georgia, Inc. v. Lockton Companies, Inc., suggests that the tide may be turning in the enforcement of these agreements. In this case, the Supreme Court went so far as to say that the "business climate in the State of Georgia would be adversely affected if the courts were to refuse to uphold a freely negotiated agreement pursuant to which an employer sought to protect itself." Ironically, "refusing to uphold freely negotiated agreements" is precisely what Georgia courts historically have done to protect the right of free competition by routinely declaring these agreements void for any number of reasons. As a result, employees have historically been held to a different legal standard than their employers.
It is extremely significant that the Supreme Court is now balancing the right of employees to market their services freely with the right of businesses to protect their customer relationships and other valuable interests.
Georgia continues to grow as a regional and international hub for business and commerce. While this growth is good for Georgia, it also presents increased opportunities for new and expanding businesses to lure away staff from established Georgia companies that have invested heavily in their employees.
This is where Georgia courts appear to be finding some common ground between the rights of the employees to freely market their services and the rights of the employers to protect the investments that they make in their employees.
Please keep in mind that the legal ruling in Palmer & Cay of Georgia, Inc., addresses only one type of post-employment restrictive covenant, non-solicitation of customer agreements, which must be limited in time and to those customers who were actually served by the ex-employees. The ruling in Palmer & Cay of Georgia did not extend to other kinds of post-employment covenants, such as anti-pirating agreements, which prohibit the ex-employee from soliciting away current employees, non-disclosure agreements, which prohibit the ex-employee from disclosing trade sensitive information, or non-competition agreements, which prohibit the ex-employee from working for a competitor for a period of time following the termination of his employment.
Non-compete agreements are by far the most controversial kind of post-employment covenants, and are least favored by the courts. However, enforcement of such a non-compete provision can benefit a company that may find itself dealing with intellectual property issues as a result of staff that migrated to a new company. Employees can and will take proprietary information or trade secrets with them to a new employer and apply that information to the benefit of their new employer. The company that invested in these employees and technology, meanwhile, stands to suffer. Although non-disclosure agreements and the Georgia Trade Secrets Act provide some protection from such disclosures, the best protection is to prevent the employee from working for a competitor in the first place. However, Georgia courts have made it difficult to accomplish this.
The Supreme Court's observation that there is "no legal basis for the judiciary to interfere in the affairs of the workplace" where the agreement is reasonable and was freely accepted by the ex-employee may be telegraphing a greater acceptance of restrictive covenants in general, including non-compete agreements.
It is this newly inked language that marks the turning of the tide for how you defend your business when it comes to writing and enforcing employment contracts and separation agreements.
This article is reprinted in its entirety with the permission of TechLinks Media Holding, Inc., ©1998-2007