Covenants Not to Compete

Georgia courts will enforce covenants against noncompetition if the covenant meets the minimum legal standards as specified in recent Georgia code revision dealing restrictive covenants in contracts as approved by the Georgia’s 2010 constitutional amendment because reasonable restrictive covenants in employment and commercial contracts serve the legitimate purpose of protecting business and creating an environment that is favorable to attracting commercial enterprises to the state. With that general purpose the new Code does contain protection for employees against prohibition from future employment where the employee is one that can have no real effect on the legitimate interests of the employer or where the restrictions are over broad. The protections of the parties are applied differently in the employment context than in the commercial contracts context.

Restrictive Covenants in Employment Contracts

For a restrictive covenant in the employment context to be enforceable in Georgia there must be a legitimate business interest of the employer that is sought to be protected, such as confidential information or customer relationships. Georgia’s code revision distinguishes between restrictive covenants in the employment context from those in the commercial contest. Georgia carves out rank and file employees and protects them from post-employment covenants not to compete, while allowing covenants against disclosure of confidential information and against solicitation of customers with whom they material dealt. For an employee to be subject to an enforceable post-employment covenant to compete the employee must perform the duty of regularly soliciting customers, performing management functions primarily for two or more employees and have the power to hire and fire, be a Key Employee or Professional Employee as defined by the code and the restrictions must be reasonable in duration and scope, and the Code limits the duration to not more than three (3) years. Like any contract, an employment contract containing restrictive covenant must be supported by consideration. In the initial employment context becoming an employee is the consideration. In an amendment to an employment agreement, the consideration can be a change in position and a raise, or in an “at will” state like Georgia, simply continuance of employment can be consideration. Georgia, like, many other states, now authorizes a court to examine the breadth of the covenants and adjust the contract to limit it duration and breadth of scope to that which is reasonable.

Restrictive Covenants in the Sale of a Business or other Commercial Context

Restrictive covenants are common in commercial contracts (e.g. distribution contracts, license agreements, broker and other independent contractor agreements, contracts for the purchase or sale of a business), where there is a legitimate business interest to be protected. Courts are less restrictive in the application and enforcement of commercial restrictive covenants because the bargaining power of the parties is generally equal and the courts find less need to protect a party for lack of bargaining power. The restrictions enforced in the commercial context tend to me longer and of greater breadth as long as they are reasonable in the circumstances.

For over forty years, our clients have relied on Thomas E. Raines, PC to help them make prudent business, financial, and personal decisions on restrictive covenants in contracts. If your business or organization needs assistance in the area of restrictive covenants in contracts, please contact our Atlanta Business Lawyer immediately at 770-263-0093 or vial email through the contact portion of this website.

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