August 14, 2013 —
In June, we left Dick and Jane with Dick contemplating a career change and the effects of a covenant not to compete. The analysis of that situation was put on hold to discuss the landmark decisions of the United States Supreme Court related to same sex marriage.
Recall that Dick was being presented with a job opportunity. The opportunity calls for Dick to take a position with a new company. Dick would be offered a good compensation package and ownership interest in the enterprise. The potential is well-worth considering.
However, Dick has an employment contract signed in 2005. In June 2011, he was told to sign a new version of the contract. Although his employment is labeled “at-will”, Dick has a clause labeled “COVENANT NOT TO COMPETE; NON-SOLICITATION.” The paragraphs, in summary, prohibit Dick from:
– Accepting any position with another engineering firm anywhere in the State of Georgia for a period of 2 years following his separation from his current employment; and
– Soliciting any customer of his current employer with whom Dick has had contact in the 2 years prior to his separation from his current employment.
There is no doubt that the offer presented would be competitive. As discussed previously, under Georgia law prior to 2010, the agreement would either be upheld or would be thrown out entirely. Since 2011, the agreement could now be “blue-penciled” or edited down from unreasonable to more reasonable terms.
A covenant not to compete must be reasonable as to duration, scope and geography. Under prior case law, a period of two years or less (as above) would likely be held permissible. The new statutory scheme (much harder on the employee) provides that the agreement may be equal to the length of time of the duration of the parties business relationship. Similarly, under prior case law, any agreement which was broader in geographic area than the territory worked by the employee would be unreasonable. Under the new statutory scheme, no geographic limitation is required. In fact, the agreement can include any location in which the company does business (whether or not the employee actually worked there) and the agreement contains a list of particular employers for whom the employee cannot take a position. Finally, the old case law provided that the scope of the restriction should be limited to the business of the employee whereas the new statutory scheme allows restriction measured by the business of the employer.
Most importantly, the new statutory scheme contains a significant “savings” clause that provides that an agreement which contains nothing related to a limitation on duration, scope or geography can still be enforced as long as it “promotes or protects the purpose or subject matter of the agreement or relationship or deters any potential conflict of interest.” Further, the only remedy for an unreasonable agreement is that the Court would edit the agreement down to something reasonable.
For the foregoing reasons, Dick would be able to take the opportunity under the old case law based analysis, but probably could not take the position under the new statutory scheme. More importantly, he is not just stuck with missing this opportunity, he is most likely prohibited from accepting a position with another engineering firm in any capacity or role (whether as a project manager or not) since the scope the agreement is based on his employer’s services and not his actual job.
As a general rule, the effects of the revised Georgia law should have a severely depressing effect on job mobility and transferability. The new laws should be very friendly toward large and mid-sized corporations wishing to lock up employees ranging from corporate officers down to mid-level managers and salesmen.