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Georgia Noncompete Law Remains Enforceable

In light of the continued merger activity within the state, including the blockbuster SunTrust/BB&T merger, we’ve seen a renewed focus on the enforceability of non-compete provisions – from banks looking to hire, from banks hoping to retain, and bank employees considering a change.

Image by Mohamed Hassan from Pixabay

Apparently, we’re not alone. On May 1, 2019, the American Banker published a story titled “What ruling on non-compete clauses means for banks — and job hunters.” The article looks at the potential impact of the the Georgia Court of Appeals’s decision in Blair v. Pantera Enters., Inc. (2019 Ga. App. LEXIS 114). Among other things, the article posits that “if BB&T and SunTrust want to enforce non-compete agreements with all their loan officers and wealth management experts stationed in Georgia, some of those contract provisions might not pass legal muster, according to legal experts.” While the enforceability of non-compete agreements is always subject to legal uncertainty, with the specific facts at play and the trial judge potentially playing a significant role, we think this vastly overstates the impact of Blair v. Pantera, particularly in the bank context.

Blair v. Pantera involved the enforceability of a non-compete provision against a backhoe operator. The court found, correctly and consistently with the Georgia Restrictive Covenants Act (O.C.G.A. § 13-8-50 et seq.), that he was not an employee under the statute against whom a non-compete could be enforced. Under the Georgia Restrictive Covenants Act, non-competes may generally only be enforced against employees that: manage the business, regularly direct the work of two or more other employees, can hire or fire other employees, are regularly engaged in the solicitation of customers or with making sales or taking orders, or meet the definition of a “key employee” under the statute. Under the statute, an employee must fit in one of these categories to sign a valid non-compete. See O.C.G.A. § 13-8-53.

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Has Your Georgia Non-Compete been Rendered Invalid?

Can Inclusion Of A Boilerplate Duty Of Loyalty Provision
Invalidate Your Covenant Not To Compete?

The Early v. MiMedx Decision

On February 10, 2015, the Georgia Court of Appeals held in Early v. MiMedx Grp, Inc., that a provision in a consulting agreement requiring an employee to devote her full working time to the performance of her duties for the employer was not a loyalty clause but, instead, constituted an illegal restraint on trade. In and of itself, the decision in Early is interesting and will undoubtedly affect how employers draft their duty of loyalty provisions. Perhaps a less obvious consequence of this decision, however, is that by reading a loyalty clause as a restrictive covenant, the Court has now placed employers in jeopardy of having their
otherwise valid, and properly tailored, restrictive covenants invalidated if they are contained in an agreement signed prior to May 11, 2011.

Sometime in January 2011, MiMedx Group, Inc. (“MiMedx”), a developer and manufacturer of patent protected bio-material based production, began discussing a potential business relationship with Ms.
Ryanne Early.  As part of these discussions the parties entered into a Mutual Confidentiality and Nondisclosure Agreement (the “Nondisclosure Agreement”) which “prohibit[ed] Early from disclosing trade secrets and confidential information, which might be revealed to her during negotiations with MiMedx.” Shortly thereafter MiMidex and Ms. Early entered into a Consulting Agreement, whereby Ms. Early’s company ISE Professional Testing and Consulting Services (“ISE”) agreed to provide certain consulting services to MiMidex (the “Consulting Agreement”).

As part of the Consulting Agreement, Ms. Early was required to “devote her full working time (not less than forty (40) hours per week) to [the] performance of Consultant’s duties . . .” (the “full working time provision”). The Consulting Agreement was subsequently terminated and MiMidex filed a complaint against Ms. Early and her company seeking damages and specific performance under the Consulting Agreement and the Nondisclosure Agreement. Ms. Early filed a motion for judgment on the pleadings “contending . . . among other things that the full-time working provision of the Consulting Agreement was void and unenforceable as either a general or partial restraint of trade.”  The primary issue considered on appeal involved the enforceability of the full-working-time provision.

In assessing the issue, the Georgia Court of Appeals determined that the full-time-working provision required that “Early would devote any working time to MiMedx’s business, whether or not that working time was related in any way to the type of enterprise in which MiMedx is engaged.” In fact, the parties agreed that Early would be prohibited from even doing jobs such as babysitting on the weekends or working at a bookstore.  Looking to its earlier decision in Atlanta Bread Co. Intl., Inc. v. Lupton–Smith, the Court held that a provision that requires an employee to spend all her working time on the employer’s business, regardless of the type of job, is a “partial restraint of trade designed to lessen competition. ”  Accordingly, the Georgia Court of Appeals deemed the full-working-time provision “a restraint of trade, rather than a loyalty provision.”  The Court went on to find the provision unenforceable as it was not limited in time, territory or scope.

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A New Era for Georgia Non-Compete Agreements

On May 11, 2011, Georgia Governor Nathan Deal signed House Bill 30 into law, ushering in a new era for non-competition agreements (non-competes), non-disclosure agreements (NDAs), and non-solicitation covenants under Georgia law.  Historically, Georgia courts have not been friendly to such agreements and have made enforceability unclear.  The new statute clarifies and strengthens the ability of parties to restrict conduct during and after employment or a deal.  Perhaps most importantly, the law expressly authorizes courts to cure or “blue pencil” such agreements signed on or after May 11, 2011.  Under the previous regime, one faulty provision generally invalidated an entire restrictive covenant in Georgia.  In addition, the new law makes clear that NDAs need not specify a time limit on a requirement to maintain information as confidential so long as the information otherwise remains confidential.

In Georgia, new consideration is not required to execute new non-competes, so employers are in a good position to strengthen their competitive protections under the revised statute, but action is required as only new agreements will enjoy the benefits of the new law.  The new law also governs restrictive covenants between distributors and manufacturers, lessors and lessees, partnerships and partners, franchisors and franchisees, sellers and purchasers of a business or a commercial enterprise, and two or more employers.

In-Term Covenants Generally

The bill codifies many aspects of the law in this area that had developed in the Georgia courts.  This includes the presumption that any restriction within an agreement that operates during the term of the underlying employment or business relationship is not unreasonable because it lacks any specific limitation on the scope of activity, duration, or geographic area as long as it promotes or protects the purpose of the agreement or deters any potential conflict of interest.

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