Trading Secrets : Trade Secrets Lawyers & Attorneys : Seyfarth Shaw Law Firm : Computer Fraud, Confidentiality Agreements, Corporate Espionage

Because the laws of various states regarding non-compete clauses differ significantly, cases involving these provisions often entail fights at the outset as to the proper venue. The Eastern District of Pennsylvania recently faced just such an issue in CertainTeed Corp. v. Nichiha USA, Inc., Civil Case No. 09-CV-3932-LS, 2009 WL 3540796 (E.D. Pa. Oct. 29, 2009). In that matter, CertainTeed contested with Bruno Demey, its former Director of Manufacturing and Technology, and Nichiha, Demey’s new employer, over whether litigation between the parties should go forward in Pennsylvania or Georgia.

CertainTeed’s headquarters are located in Valley Forge, Pennsylvania, and it has manufacturing plants in Indiana, North Carolina, and Oregon. Its confidential information, trade secrets, and computer servers are located in Valley Forge. CertainTeed hired Demey in March 2003. Demey executed a non-compete agreement with CertainTeed in September 2004. During his employment with CertainTeed, Demey resided in South Carolina and made numerous trips to Valley Forge for meetings.

The timeline of events relevant to the litigation are as follows: 

1.         Demey resigned from CertainTeed on August 20, 2009.

2.         Demey filed a complaint and motion for a preliminary injunction in the Superior Court of Fulton County, Georgia on August 24, 2009. Demey stated that he intended to move to Georgia to work for Nichiha and therefore sought injunctive relief against CertainTeed setting forth: (a) that the non-compete and non-disclosure terms of the non-compete agreement are unenforceable under Georgia law; and (b) that CertainTeed could not take action to enforce the covenants against Demey or otherwise preclude Demey from working for Nichiha.

3.         On August 26, 2009, CertainTeed removed the state court action to the United States District Court for the Northern District of Georgia. 

4.         CertainTeed filed an action against Demey and Nichiha in the Eastern District of Pennsylvania on August 28, 2009. CertainTeed alleged a breach of contract claim and breach of fiduciary duty claim against Demey, a tortious interference with contractual relations claim and an unfair competition claim against Nichiha, and violations of the Pennsylvania, South Carolina, North Carolina, Indiana, and Oregon trade secrets acts, as well as a civil conspiracy claim, against Demey and Nichiha.

5.         On August 31, 2009, CertainTeed requested a preliminary injunction and temporary restraining order.

6.         On September 2, 2009, the Georgia district court granted Demey’s motion for a temporary restraining order and enjoined CertainTeed from enforcing the non-competition covenant in Georgia. On that same date, Nichiha filed a motion to dismiss, transfer or stay the Pennsylvania action.

7.         On September 3, 2009, CertainTeed filed a first amended complaint in the Pennsylvania action, removing any claim to enforce the non-compete covenant in Georgia.

The Pennsylvania district court ultimately decided to deny Nichiha’s motion to dismiss, stay, or transfer and therefore let CertainTeed proceed with its claims in Pennsylvania. In its order, the Pennsylvania court addressed three issues. First, it rejected Nichiha’s claim that the first-filed rule required that the matter progress exclusively in Georgia. The court found that the Pennsylvania action was not “truly duplicative” of the Georgia action because the former included a number of claims that were not present in the latter. The court rejected Nichiha’s assertion that the claims asserted by CertainTeed were mandatory counterclaims in the Georgia action, instead finding that the trade secret claims were not so related to the non-compete claims that separate trials would lead to “substantial duplication of efforts.”

The district court next addressed the issue of venue. It decided that a substantial portion of the events at issue took place in Pennsylvania. Specifically, it cited CertainTeed’s allegations that: (a) Demey and Nichiha would be sharing and utilizing confidential information and trade secrets that originated, and are stored, in Valley Forge, Pennsylvania; and (b) Nichiha and Demey conducted negotiations while Demey was in Pennsylvania.

Finally, the district court answered the question of whether it should transfer the case to Georgia in the negative. After recognizing that a plaintiff’s choice of forum is a “paramount consideration,” the court remarked that CertainTeed’s key witnesses and documents are maintained on servers located in Valley Forge. The court also decided that the Eastern District of Pennsylvania is as convenient as the Northern District of Georgia for non-party witnesses. Thus, for the time being, the case between CertainTeed, Demey, and Nichiha will proceed on two fronts.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recent trial court decision from Superior Court Judge Tommy Hankinson of the Griffin Judicial Circuit illustrates one of the many difficulties of enforcing a non-compete provision in Georgia. Specifically, the case – Turner v. Peachtree Fayette Women’s Specialists, LLC, Civil Action File No. 2009V-0746, slip op. (2009) – illustrates that when an employer drafts the geographic scope of a non-compete provision, it had better be sure that the signing employee is going to work in all of the specified areas.

The Plaintiff, Dr. Heather Turner, starting working for Defendant Peachtree Fayette Women’s Specialists (“PFWS”) in October 2006. At the outset of her employment, Dr. Turner signed a non-compete provision that prevented her from providing obstetrical and gynecological services for a two-year period after the end of her employment in the following territory: (1) the area within a five-mile radius of PFWS’s office; (2) Piedmont Fayette Hospital in Fayetteville; and (3) Piedmont Hospital in Atlanta. The case turned on the last of the three areas.

Dr. Turner announced her intention to resign on March 16, 2009, and then filed a declaratory judgment action on April 28, 2009, arguing that the non-compete provision was unenforceable. PFWS counterclaimed for a declaratory judgment, injunctive relief, and attorneys’ fees. After conducting an evidentiary hearing, Judge Hankinson found that Dr. Turner never worked or treated patients at Piedmont Hospital in Atlanta, although she did have staff privileges there. Other PFWS physicians treated patients at Piedmont Hospital earlier in Dr. Turner’s employment with PFWS, but they were not doing so and had not renewed their staff privileges there by the time that Dr. Turner resigned. 

The Court concluded that Dr. Turner did not perform work throughout the territory covered by the non-compete provision and that, as a result, the provision was unenforceable. The Court rejected PFWS’s argument that it received referrals from Piedmont Hospital in Atlanta, noting that Dr. Turner had no relationships there from which to obtain referrals. Because Georgia does not permit blue-penciling or modification of unenforceable provisions, the Court’s conclusion leaves Dr. Turner completely free of the non-compete restriction. PFWS has filed a notice of appeal, so the Georgia Court of Appeals will have an opportunity to opine on the case.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Atlanta Bread Co. Int’l, Inc. v. Lupton-Smith, S08G1815, 2009 WL 1834215 (Ga. Jun. 29, 2009), the Georgia Supreme Court today confirmed that in-term restrictive covenants are subject to the same strict scrutiny standard applied to post-term covenants and the same reasonableness standards of time, territory, and scope. 

The question presented in Atlanta Bread Company was whether the in-term non-compete covenant in a franchise agreement between Atlanta Bread Company and Sean Lupton-Smith is enforceable under Georgia law. The covenant at issue states as follows:

During the term of this Agreement, neither [Lupton-Smith] nor any Principal Shareholder, for so long as such Principal Shareholder owns an Interest in [Lupton-Smith], may, without prior written consent of Franchisor, directly or indirectly engage in, or acquire any financial or beneficial interest in (including any interest in corporations, partnerships, trusts, unincorporated associations or joint ventures), advise, help, guarantee loans or make loans to, any bakery/deli business whose method of operation is similar to that employed by store units within the System.

During the term of the franchise agreements, Lupton-Smith opened and began operating a P.J.’s Coffee & Lounge in Atlanta, Georgia. Atlanta Bread Company sent a notice terminating the franchise agreement and litigation ensued. The trial court and Court of Appeals both found that the in-term non-compete provision was unenforceable under Georgia law because it failed to “meet[] the reasonableness standards promulgated in Georgia.” 

The Supreme Court rejected Atlanta Bread Company’s argument that the provision is a loyalty provision rather than a non-compete provision, noting that

[a] plain reading of the clause shows that it prohibits the franchisee from engaging in a certain type of business during the term of the parties’ agreement and, thus, it is a partial restraint of trade designed to lessen competition. Such restraints, no matter the nomenclature assigned to them, are disfavored in this state as a matter of public policy.

The Court rejected any contention that a franchise relationship should be treated differently, confirming that the court has held time and again” that franchise agreements and employment agreements are subject to the same strict scrutiny (meaning, among other things, that it cannot be blue-penciled). This analysis removes any doubt that the Court’s analysis in Atlanta Bread Company also will apply to in-term restrictive covenants in an employment agreement. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On April 29, 2009, Governor Sonny Perdue signed HB 173, legislation intended to revamp the way that non-compete, non-solicit and non-disclosure agreements are enforced in Georgia. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On April 1, 2009, the Georgia Senate passed HB 173 on restrictive covenants.  The vote tally was 45 in favor and 2 opposed.   The legislation will now await Governor Sonny Perdue's signature. 

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

In Azzouz v. Prime Pediatrics, P.C., Case No. A08A2340, 2009 WL 619189 (Ga. App. Mar. 12, 2009), the Georgia Court of Appeals upheld a trial court’s grant of an interlocutory injunction on behalf of Prime Pediatrics, P.C. against Dr. Rami Azzouz. Dr. Azzouz entered into a detailed non-competition provision upon the commencement of his employment with Prime. The provision is as follows:

Employee hereby covenants and agrees with Employer that during his employment pursuant to the terms of this Agreement and for a period of two (2) years following the termination of his employment for any reason, the Employee shall not practice pediatric medicine or any pediatric sub-speciality within the following counties located in the State of Georgia: Whitfield, Murray, Gordon, Catoosa, and Walker except as an Employee of the Employer pursuant to the terms of this Employment Agreement.

Nothing contained herein however shall be construed so as to prohibit the Employee from practicing medicine as a pediatrician outside the territory set forth above before the expiration of said two (2) years, or within the territory as described above after the expiration of two (2) years, nor from prohibiting the Employee from practicing specifically any specialty of medicine other than pediatrics....

The parties agree that prohibited competition shall include maintaining pediatric privileges at any hospital located in the prohibited area, advertising in any form, including but not limited to, telephone, white and yellow pages, radio, newspaper advertisements, signage advertising, keeping or maintaining an office within the prohibited geographical area, posting web-sites showing business locations in the prohibited geographical area, or mailings to patients of Employer within the prohibited geographical area.

Non-compete provisions in Georgia typically are limited to the language of the first paragraph of Dr. Azzouz’s non-compete section: a prohibition on competing in a specific field and a specific geographic area for a specific period of time. Prime Pediatrics added the subsequent paragraphs that have the effect of providing greater detail as to what is and is not prohibited by the provision. These subsequent paragraphs proved important when Dr. Azzouz left Prime Pediatrics to open a competing practice and litigation ensued.

Dr. Azzouz argued that the third paragraph barred him from working in any hospital that advertises within the five-county area covered by the non-compete provision. If this interpretation were correct, then the non-compete provision would have been overly broad and unenforceable. The Court of Appeals found that this paragraph was “not constructed perfectly” and then proceeded to add in semicolons to make the provision clearer:

The parties agree that prohibited competition shall include ..., advertising in any form, including but not limited to [ (1) ] telephone, white and yellow pages, radio, newspaper advertisements, signage advertising, keeping or maintaining an office within the prohibited geographical area[; (2) ] posting to web sites showing business locations within the prohibited geographical area [;] or [3] mailings to patients of Employer within the prohibited geographical area.

In so doing, the Court of Appeals relied on O.C.G.A. § 13-2-2(6), which provides that the rules of grammatical construction may be disregarded when interpreting a contract in order to give effect to the parties’ intent. Although the Court of Appeals’ action could be construed as blue-penciling (which is prohibited in Georgia for restrictive covenants in the employment context), the Court of Appeals was able to rely on statutory and common law authority that permits minor changes for grammatical purposes.

The Court of Appeals also cited the second paragraph of the non-compete section, noting that Dr. Azzouz’s construction of the third paragraph was inconsistent with the provision of the second paragraph stating that Dr. Azzouz was free to practice any specialty of medicine other than pediatrics. In the end, the additional paragraphs following the basic non-compete provision first gave Dr. Azzouz an angle of attack and then negated that angle.

Azzouz is interesting because Court of Appeals assumed that the trial court’s factual conclusions were correct. Yet, in other instances, the Court of Appeals has refused to enforce non-compete provisions based on fact-specific arguments made by defendants before a trial court. For instance, in Beacon Sec. Technology, Inc. v. Beasley, 286 Ga. App. 11, 648 S.E.2d 440 (2007), the Court of Appeals refused to enforce a non-compete provision because the record reflected that the employer did not prove that the employee performed each of the prohibited activities in each of the counties listed in the non-compete provision. It is possible that Azzouz could have made a similar argument regarding his provision of pediatric services in the five-county area covered by the non-compete provision, but he failed to get a transcript of the proceedings below.

Azzouz further illustrates that non-compete provisions, although disfavored under Georgia law, are useful in certain professions. Georgia has a strict rule that a non-compete provision has to be limited to the geographic area worked by an employee. This can create problems for employees who have very large assigned areas (such as sales personnel with nationwide books of business) or employees who have no assigned areas (such as research scientists). Physicians, on the other hand, typically see patients from defined geographic areas. As such, it often can be easier to draft and enforce a non-compete provision against a doctor.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Global Link Logistics, Inc. v. Briles, No. A08A1871, (Ga. App. Feb. 18, 2009), the Georgia Court of Appeals recently reiterated Georgia court’s requirements for non-compete and non-disclosure covenants. The case involved the departure of Jim Briles from Global Link Logistics to a competitor. Briles moved for a declaratory judgment stating that the restrictive covenants in his employment agreement – a non-compete provision and a non-disclosure of confidential information provision – were unenforceable. Global Link answered and moved to compel arbitration. The trial court found that the restrictive covenants were unenforceable.

The Court of Appeals upheld the trial court’s finding. It held that the non-disclosure provision was unenforceable because it purported to cover Briles’s “observations” and was therefore overly broad. The provision also lacked a time limit, as required by Georgia law. As far as we know, Georgia is unique among all 50 states in the latter requirement. 

The Court of Appeals held that the non-compete provision was unenforceable for two reasons. First, it purported to prevent Briles from working as an “owner, operator, manager, employee, officer, director, consultant, advisor, representative or otherwise.” As such, the prohibition was an impermissible “in any capacity” restriction. Second, it purported to bar solicitation of all of Global Link’s customers, regardless of whether Briles had material contact with them. 

Faced with hostile law, Global Link made two additional arguments. It asserted that Briles’s agreement should be viewed under Georgia’s more lenient degree of scrutiny afforded to restrictive covenants executed in connection with the sale of a business. The Court of Appeals rejected this argument, concluding that Briles did not own an interest in Global Link’s predecessor when he executed the agreement in question. Thus, the fact that he acquired an equity stake in Global Link when it purchased the predecessor was immaterial. 

Global Link also argued that the trial court’s order ignored Georgia’s policy of deferring to actions previously filed in other jurisdictions, as well as the parties’ own forum selection clause, and that it undermined state and federal policy favoring arbitration. The Court of Appeals dismissed each of these arguments. It found that Briles had obtained relief from the trial court after Global Link had dismissed an action filed against Briles in Delaware and before either party commenced arbitration. Moreover, the Court of Appeals cited to the language of the arbitration provision in Briles’s employment agreement, which specifically stated that the parties could obtain injunctive relief in court prior to arbitration.

Global Link illustrates the difficulties in enforcing a restrictive covenant in Georgia. The Court of Appeals was able to pick from any one of a number of rules to knock out the restrictive covenants. The decision also highlights the fact that the relaxed scrutiny for restrictive covenants in the sale of a business context applies only if the covenant was signed as part of the actual sale.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday afternoon, the Georgia House of Representatives passed HB 173, a bill that would set forth a comprehensive statutory framework for interpreting restrictive covenant agreements. The current version of the bill is linked here. The final vote was a resounding 137 in favor and 22 against. HB 173 will now progress to the Georgia Senate for consideration. The bill passed the House on cross-over day, the last day in which a bill can pass one house of the Georgia Assembly in order to be considered by the other.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

HB 173, which we have written about before, heads to a vote before the Georgia House of Representatives today.  The legislation  dramatically changes the way Georgia court's will review restrictive covenants (non-competes, non-solicitation agreements) and fixes the time limit imposed on confidentiality restrictions (eliminating the two-year restriction).  To find out how to reach your State Representative to express your views, click here.  

If the bill does not pass today, it is my understanding that it will not be given any further consideration this session.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

This afternoon, the Judiciary Committee of the Georgia House of Representatives unanimously passed HB 173 and HR 178, which would set forth a statutory and constitutional framework for interpreting restrictive covenant agreements related, in particular, to employment. 

The House Civil Judiciary Subcommittee debated HB 173, leading to a number of changes. Specifically, the Subcommittee added language setting forth a test (analogous to the exempt/non-exempt test under the Fair Labor Standards Act) to determine whether an employee can be subject to a non-compete provision.  Additionally, the Subcommittee added in language permitting courts to take the economic hardship of an employee into account when deciding whether to enforce a restrictive covenant.  Finally, the Subcommittee added in language to ensure that courts cannot expand the scope of a restrictive covenant; they can only strike language or reduce the scope of the restrictions based on a rule of reasonableness.  The bill passed out of the Subcommittee on March 2, 2009 with a “do pass” recommendation.

The full Judiciary Committee considered the legislation this afternoon.  After brief explanatory remarks from the bill’s chief sponsor, Rep. Kevin Levitas, Committee Chairman Wendell Willard expressed happiness with the changes to the bill over the past year.  The Committee then passed the bill unanimously. 

HB 173 and its companion, HR 178 (a recommended constitutional amendment related to the legislation), will now be before the House Rules Committee.  If the Rules Committee passes the bill and the resolution, then they will be eligible for consideration by the House of Representatives itself before teh session ends.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Georgia House of Representatives is hard at work on the restrictive covenant bill (HB 173 - note that the linked version is not the most current as we understand it).  The House Civil Judiciary Subcommittee (led by Rep. Mike Jacobs) has been reviewing the proposed legislation.  Although a vote was anticipated earlier this week, the bill was held over so the subcommittee could look at adding language to ensure that the statute did not have the unintended consequence of reaching employees who were not involved in sales and whose duties would not normally involve interacting with customers or access to trade secrets and confidential information. 

On Tuesday of this week, HR 178, the companion resolution recommending an amendment to the Georgia constitution "so as to allow the enforcement of contracts that restrict competition during or after the term of employment or of a commercial relationship so long as such contracts are reasonable in time, area, and line of business; to provide that courts may modify such contracts to achieve the intent of the contracting parties; to provide for the submission of this amendment for ratification or rejection; and for other purposes," was cleared through the subcommittee with a "do pass" recommendation. 

We are not sure when we will see a new draft of the proposed legislation, but we will post a link when it is available.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Representative Kevin Levitas's HB 173 is headed for another hearing on Monday at the Georgia Capitol.  It may be up for a vote before the full Judiciary Committee as soon as Tuesday, February 17, 2009.  

Subcommittee chairman Representative Mike Jacobs led the latest hearing on Tuesday, February 10, 2009.  The subcommittee heard support for the bill from Reed Elsevier, Inc. and Gould Hagler, the Executive Director of the Independent Insurance Agents of Georgia, Inc. (who also suggested a few potential modifications) among others.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Just before the end of 2008, Georgia's House Study Committee on Restrictive Covenants in the Commercia Arena, chaired by Representative Kevin Levitas, issued its final report, asking for support to "[m]oderniz[e] Georgia law" and to "attract new business to our great state and retain those companies that are already located here." 

Following two hearings involving testimony and letters from a number of witnesses (in full disclosure, I participated in providing testimony), the Committee concluded that "[t]he time has come for a change in Georgia law, both to bring our state in line with the overwhelming majority of other states as well as to establish a rule of reasonableness in the analysis of restrictive covenants." 

Additionally, the Committee recommended that Georgia courts be allowed to "blue pencil" restrictive covenants in connection with employment agreements (blue-pencling in connection with agreements relating to sale of a business already is allowed).  A couple of practitioners who testified before the Committee expressed concern that blue-penciling would make it more difficult to predict outcomes; that is that there is no certainty until the litigation concludes.  Proponents of blue-penciling countered that argument by noting that blue-penciling may lead to more negotiated settlements of disputes. 

It appears that the legislation may be headed for a hearing this session.   The question that remains is whether a constitutional amendment will be required.  Previous attempts by the General Assembly to bring clarity to Georgia's law were struck down by Georgia's Supreme Court as violating Art. III, Sec. VI, Par.  V(c) of the Constitution of Georgia of 1983, which reads: "The General Assembly shall not have the power to authorize any contract or agreement which may have the effect of or which is intended to have the effect of defeating or lessening competition, or encouraging a monopoly, which are hereby declared to be unlawful and void."  So, in addition to making it through the General Assembly, we may also see support for a constitutional amendment to avoid uncertainty in the Georgia's courts.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Earlier this year, the Georgia Court of Appeals made news in Atlanta Bread Company Int'l v. Lupton-Smith, Court of Appeals Case No. A08A0348, when it struck down in-term restrictive covenants of a franchisee on the grounds that the in-term restrictive covenants did not pass the test of reasonableness applied to post-term restrictive covenants.  In this case, the franchisee had opened several allegedly competing stores at the same time that he was operating Atlanta Bread Company franchises.  Atlanta Bread Company then terminated his franchise.   The Court of Appeals ruled that the post-term restrictive covenants and the in-term covenants were inextricably tied and because the post-term restrictive covenants did not pass muster, the in-term covenants also failed. 

The case has sparked great interest within the franchise community, as the International Franchise Association has indicated that the lower court decision would wreak havoc on franchise systems in Georgia by  rendering  "unenforceable the in-term restrictive covenants in the vast majority of franchise contracts for businesses operated in Georgia, including many of the most well-known and respected franchises in the world."   The Court of Appeals ruling was cast as opening the door for franchisees potentially to compete with their own franchisors during the term of the franchise agreement.  Georgia applies strict scrutiny review to post-termination restrictive covenants between franchisees and franchisors, which is the same standard applied to such agreements between employees and employers.  As a result, Georgia will not blue pencil such an agreement, even though it will blue pencil a non-competition covenant contained in the sale of a business.  

On October 6, 2008, The Georgia Supreme Court granted Atlanta Bread Company's petition for certiorari.  The Court agreed to hear, in particular, the following questions:

1. Did the [Court of Appeals] err in holding that under Jackson & Coker v. Hart, 261 Ga. 371 (1991), the reasonableness standard applicable to post-termination restrictive covenants also applies to in-term restrictive covenants?

2. Did the [Court of Appeals] err in applying to in-term restrictive covenants in franchise agreements the rule against allowing the blue-pencil doctrine of severability.

The Supreme Court's decision to grant certiorari means that oral argument is mandatory.  The case will proceed on the January 2009 oral argument calendar. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This morning (September 24, 2008), Rep. Kevin Levitas and Sen. Judson Hill from the Georgia Legislature convened the first meeting of a legislative study committee reviewing the law of Georgia with respect to restrictive covenants in employment and business relationships. The House Committee is chaired by Representative Kevin Levitas, and includes the following members: Representative Tim Bearden; Representative Butch Parrish; Representative Richard Smith; Representative Brian Thomas; and Representative Al Williams. As Representative Levitas previously remarked,

“It is time that the legislature studied this issue in depth and provided clear guidance to the courts regarding the sustainability of these private agreements between private contracting parties and how to make them fair to all parties. . . .

 “It is imperative that we carefully examine all aspects of this important issue so that both employer and employee can know their rights and duties after employment has ended.

“Both parties need to know with certainty what they can and cannot do, and that is why legislation in this area is so important. In addition to providing certainty to the parties, clarifying the law will have a significant impact on Georgia’s economy and the ability of the state to attract businesses to this state and to keep them here.”

Levitas noted th[at] he expects that the committee will hear from a diversity of witnesses with differing viewpoints on the subject. Levitas said that he intends for the committee “to bring together all necessary points of view and to gather all of the facts so that we can, once and for all, clearly define and bring certainty to this important area of the law.”

Erika Birg, a partner with Seyfarth Shaw’s Trade Secrets, Non-Competes, and Computer Fraud team, led off the morning’s testimony, highlighting the background of restrictive covenant law in Georgia. A lively question-and-answer session followed between the committee members and Ms. Birg. The committee’s questions, although varied in substance, primarily involved how a court or a legislature would determine whether a covenant is “reasonable,” as well as how the legislature might craft legislation (and a constitutional amendment if needed) that would address the concerns of both Georgia employers and their valued employees. 

J. Henry Walker IV, a partner with the litigation group of Kilpatrick Stockton and former in-house litigation counsel for BellSouth, spoke, representing the Georgia Chamber of Commerce. Mr. Walker noted the Chamber’s support for the committee’s work directed towards re-vamping Georgia’s law to provide certainty for both employers and employees. Mr. Walker also discussed BellSouth v. Forsee, 265 Ga. App. 589 (2004), a case in which BellSouth lost the ability to enforce a non-compete for a high-level executive because of Georgia court’s prohibition on enforcing a non-compete that is not certain at the time of execution of the agreement. He highlighted that certainty in the law benefited all concerned – employers and employees alike. 

The committee then heard from R. Samuel Snider, Vice President and Lead Acquisition Counsel for LexisNexis, a subsidiary of Reed Elsevier, regarding the effect of Georgia’s admittedly confusing law on the company’s decision to relocate to Georgia following its acquisition of ChoicePoint. Mr. Snider focused on the needs of technology companies to protect both intangible intellectual property but also protect the companies’ investments in highly compensated and sought-after personnel. He noted that in such instances, restrictive covenants may be part of a negotiated employment arrangement.

The study committee is set to meet again this fall, before the Legislature reconvenes in January. As the date and time are set, we will post the information here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 Following is a Press Release from the Georgia House of Representatives.

Speaker Richardson Appoints Representative Kevin Levitas to Chair House Study Committee on Restrictive Covenants in the Commercial Arena

ATLANTA –Speaker of the House Glenn Richardson (R-Hiram) has appointed Representative Kevin Levitas (D-Atlanta) to chair the House Study Committee on Restrictive Covenants in the Commercial Arena.

“I am confident that Representative Levitas will be an asset to this study committee. He is an extremely diligent worker, and I know he will work well with the other Representatives appointed to this committee,” Richardson said.

House Resolution 1879 established the House Study Committee on Restrictive Covenants in the Commercial Arena to examine the proper functioning of restrictive covenants in today’s marketplace and to fulfill the legislature’s role in defining public policy in this area.  

A restrictive covenant is an agreement between an employer and an employee (or an independent contractor) that limits the ability of a former employee to unfairly compete against the employer after termination of employment. 

In the absence of clear direction from the General Assembly, Georgia courts have issued conflicting decisions and voided many of these agreements in their entirety, often on the basis of a strict reading of a technical defect in one part of an agreement. 

Levitas said, “It is time that the legislature studied this issue in depth and provided clear guidance to the courts regarding the sustainability of these private agreements between private contracting parties and how to make them fair to all parties.” Levitas said that the study committee will examine court precedent and hear testimony from witnesses regarding the effect of the current state of the law.

“I am honored that Speaker Richardson has appointed me to chair this study committee,” noted Levitas. “The history and treatment of restrictive covenants in Georgia have never been fully studied before by the General Assembly. It is imperative that we carefully examine all aspects of this important issue so that both employer and employee can know their rights and duties after employment has ended.”

Levitas remarked, “Both parties need to know with certainty what they can and cannot do, and that is why legislation in this area is so important. In addition to providing certainty to the parties, clarifying the law will have a significant impact on Georgia’s economy and the ability of the state to attract businesses to this state and to keep them here.”

Levitas noted the he expects that the committee will hear from a diversity of witnesses with differing viewpoints on the subject. Levitas said that he intends for the committee “to bring together all necessary points of view and to gather all of the facts so that we can, once and for all, clearly define and bring certainty to this important area of the law.”

The committee will hold its first meeting at 9:00 a.m. on Wednesday, September 24, in Room 132 of the State Capitol. The other members of the committee are: Representative Tim Bearden (R-Villa Rica), Representative Butch Parrish (R-Swainsboro), Representative Richard Smith (R-Columbus), Representative Brian Thomas (D-Lilburn) and Representative Al Williams (D-Midway).

###

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In an order dated July 25, 2008, the Georgia Court of Appeals reiterated that non-compete provisions in Georgia cannot prohibit an ex-employee beyond performing services related to the employer’s business. Avion Systems, Inc. v. Thompson, No. A07A1488, 2008 WL 2854300 (Ga. App. Jul. 25, 2008). In Avion Systems, the Court of Appeals was asked to determine whether the following non-compete provision was enforceable:

For a period of twelve (12) months following the completion of project, the Employee unconditionally agrees to not deal directly, indirectly, or by any other means, either individually or in association with another individual or organization for any pecuniary gain with Corporation's customer or their client to whom he is assigned at the particular job site for that particular division or subdivision with whom Employee had contact....

Despite the fact that the non-compete provision was limited to 12 months in duration and to the customer to whom the employee was assigned, the Court of Appeals held that the provision was unenforceable. The restriction ran afoul of the prohibition in Georgia against “in any capacity” restrictions:

Here, the covenant did not specify the activities in which Thompson was prohibited from engaging, but instead prohibited her from dealing with a client “for any pecuniary gain,” regardless of whether her activities were related to Avion’s business. The provision was thus overbroad and unenforceable, as it is not reasonably necessary to protect the interests of Avion.

Avion Systems stands as a reminder that Georgia has very particular requirements for the enforcement of non-compete provisions and that an employer must pay attention to those requirements to have any chance of enforcing post-employment restrictions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link