Don’t Let Restrictive Covenants Limit Your Future
The use of non-competition agreements has become so common a business practice in the United States that media outlets like the New York Times and The Washington Post have devoted coverage to their increased use across a variety of industries. Remarkably even low-wage employees have been required to sign them as a condition of employment, agreeing not to perform the same or similar types of work for a competing employer after leaving the company that’s presently offering them a job.
Jimmy John’s sandwich shop, for example, is currently involved in two class action lawsuits brought by former employees, who were required to sign a company wide non-compete that restricts them from working for any Jimmy John’s competitor within 3 miles of a Jimmy John’s location for a period of two-years after their employment ends.
Unfortunately, employers often don’t even tell the employee of the requirement until after the employee has committed to the position. It’s also common for employers to have employees enter into non-competition and non-solicitation agreements, long after they initially became employed, by including these provisions in stock option agreements, deferred compensation agreements, bonus payments, commission agreements, eligibility for pension plans and the like. Many an employee has been very surprised after leaving a job to find out that they had unknowingly signed a non-competition or non-solicitation agreement when they accepted stock options, etc.
In Georgia, such agreements are covered under the Georgia Restrictive Covenant Act, which was passed in 2011 to enhance the enforceability of non-compete agreements and employee and customer non-solicitation agreements. It also restricts an employer’s ability to require non-competes from employees in non-managerial roles. (See O.C.G.A Sec. 13-8-50)
Personal Cost and Professional Limitations
Non-competition agreements can and usually do crimp the ability of a former employee to find a subsequent job. That is exactly what they are intended to do. These agreements can prevent a former employee, even if terminated without cause, from working in an industry where she worked even before she started employment with her most recent employer. In my view, such limitations are fundamentally unfair and often exceed the legitimate interest an employer has. Regardless, under current laws, employees need to protect themselves as best they can from unfair restrictions contained in restrictive covenants.
Key Considerations Regarding Restrictive Covenants
Some advice and considerations for employees who have to deal with restrictive covenants:
Understand the Difference Between Non-Competition and Non-Solicitation Agreements
These two provisions are often confused. A non-competition agreement prohibits an employee from working in the same type of position at a competitive company for a certain period of time, typically one to two years. A non-solicitation agreement, typically regarding either customers or fellow employees, does not prohibit the employee from working in a position in a competing industry., but does prohibit him or her from soliciting customers or clients whom which they had material contact while employed at their prior employer, or prohibits them from soliciting their fellow employees for a period of time, typically one to two years. Obviously, non-competition agreements have broader work limitations than non-solicitation agreements;
Are You Currently Bound by a Restrictive Covenant?
Some employers require employees to sign either non-competition or non-solicitation agreements without clearly informing them that they are entering into such obligations. They may require new employees to sign restrictive covenants when they are signing “new employee” human resource documents. They may also insert these restrictive covenants in stock option, deferred compensation, bonus or commission agreements.
When determining whether you are bound by such provisions, it is important to go back and reread your employer’s policies and procedures, and all compensation and stock option agreements that you have entered into, to determine whether there are such limitations;
Tell Your Prospective New Employer Whether You are Bound by Restrictive Covenants
Employers need to know whether a new employee is bound by a restrictive covenant. Employers are not interested in hiring someone who will bring with them a lawsuit filed by their previous employers alleging violations of restrictive covenants. Even if the perspective employer does not ask, the employee should affirmatively inform the employer of any restrictive covenant limitations he or she may have;
Ask Your Prospective Employer Whether You’re Required to Agree to a Restrictive Covenant
To minimize future problems, you should ask the prospective new employer at an appropriate time (not the first interview, but before accepting the job) whether you will be required to enter into any restrictive covenants, and if so, under what circumstances;
Assume That Non-Compete Agreements are Enforceable
Initial consultations with employees regarding their non-competition and non-solicitation agreements often start with “well, I’ve always heard that these things are not enforceable.” Not so. Although the Georgia law prior to 2011 required clear drafting for the agreement to be enforceable, such specificity is no longer required under the new Georgia law. Employees should never enter into agreements thinking that the agreement is probably unenforceable. Assume the agreement is enforceable, and how you may be affected if it is enforced as written;
Comply Fully with your Non-Disclosure Obligations
Finally, regardless of whether you are subject to a non-competition or non-solicitation agreement, employers may require their employees to enter into “Confidentiality Agreements” or ”Non-Disclosure Agreements”. Employers have a legitimate interest in trying to prevent employees from passing on or using confidential or proprietary information at their subsequent employer. Nonetheless, it is not uncommon for former employers, sometimes with little factual basis, to claim that employees are violating their confidentiality obligations, and then use those allegations as a “back door” way to try to restrict the employee from either competing or soliciting customers or employees.
The increasing use of non-competition agreements, coupled with employer and customer non-solicitation agreements, is restricting the subsequent employment of many employees. It is important that all employees (1) determine whether they are currently subject to any non-competition or non-solicitation agreements; (2) understand what their limitations are with these agreements; and (3) comply with their obligations not to disclose and keep confidential their former or current employer’s confidential information.