Do you own a business? Are you concerned that some employees you have spent years and many dollars training – perhaps to be your future managers – may leave your business, hire your best personnel and take your clients/customers and compete with you using all the things you taught them about your industry? This type of situation happens almost daily. But it doesn’t have to happen to you – if you do the right thing to prevent
The answer is Employment Covenants. Sometimes called restrictive covenants, these are agreements by your employees that they will not quit their job with you and turn around and do certain things that hurt your business. These covenants fall into four general categories:
- Covenants not to Compete – the most traditional covenants in this area. Typically these are the type of covenants used with sales personnel. The employee promises not to compete with the employer in his or her old sales territory.
- Customer Non-Solicit Covenant – An employee promises not to solicit any of the customers with whom he or she had contact when they worked for you.
- Employee Non-Solicit Covenant- An employee promises not to solicit any of your other employees to join them – whether or not they intend to compete with you after they leave. (This is especially a problem with your management who have built up a loyalty of those who worked with them or for them at your business).
- Confidentiality Covenant – Employee promises to keep confidential certain information which they received from you in connection with their new employment – even if the information is not otherwise protected as a trade secret.
You may have understood that having employees sign these covenants was a waste of time and money because they could not be enforced in Georgia. This is a common misconception about Georgia law. Prior to 2011, Employment Covenants were difficult to enforce in Georgia. The prevailing case law required that such covenants be very narrowly tailored to restrict the former employee only from not engaging in the very same work in the very same territory and had to spell out the boundaries that matched where the employee worked when he or she was employed. They also had to have defined time limits. As if that were not enough, appellate decisions instructed the trial courts that if a covenant was too broad by these strict standards, they were void and unenforceable and could NOT BE ENFORCED AT ALL. Further, in some instances where an agreement contained both a Non-Compete or a Customer Non-Solicit, and only one of them was too broad, the courts struck down both, because they considered them so interrelated.
Things are better for employers now – Georgia law has changed and my business clients are enjoying a freedom they never had before. Even if covenants are overbroad, they may nevertheless be enforce to a degree which the court deems reasonable. When an employee walks out the door now, the business owner can now do things to keep the customer base from going with them.
I have been working in the area of Employment Covenants for over 40 years. I have represented both employees and employers in this area of law. If you are either an employee or an employer and need counsel or drafting in this area, or representation in pending or threatened litigation, you need to speak with me.