BFV Perspectives, Noncompete & Trade Secrets, Sports Fans Guide 2 HR, | Mar 14, 2011

The Game Has Changed: What Will Litigation Under The New Restrictive Covenants Act Look Like?

The following article was featured in the Spring 2011 edition of the newsletter for the Atlanta Bar Association’s Labor and Employment Law Section.

By now, almost everyone is aware of Georgia’s new Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq. (the “Act”).  Most people also know the Act overturns more than one hundred years of Georgia case law and drastically changes the dynamic between employers and employees in Georgia with respect to the enforcement of non-competes and other restrictive covenants in employment agreements.  What we do not yet know is how disputes will be resolved under the Act.

With a new set of rules, non-compete litigation will likely look entirely different.  It is essentially a new season with a whole new set of rules for litigators in this area, who will combat their opponents with an arsenal of new (and mostly untested) arguments and litigation strategies.

This article provides a hypothetical roadmap of how a matter involving restrictive covenants governed by the Act might unfold.

The Client Call (“It’s Time to Play Ball”)

Your secretary buzzes you.  She tells you that Robert Cox, the general counsel of one of your best clients, Bravos Field Turf Corporation (“BravosTurf”), is on the telephone and needs to speak with you about an urgent matter.  Mr. Cox tells you that Mason Heyward, BravosTurf’s youngest, but most prolific salesperson, abruptly resigned two days ago and is now working for BravosTurf’s primary competitor, Turf-for-Less Corporation (“Turf-for-Less”).  He also tells you that BravosTurf has learned Mr. Heyward has been soliciting three of BravosTurf’s biggest customers which he serviced while employed by BravosTurf and which collectively are responsible for 40% of BravosTurf’s revenue.  BravosTurf is concerned Mr. Heyward is soliciting or will likely solicit business from other BravosTurf customers.  BravosTurf views Mr. Heyward’s employment with Turf-for-Less and his solicitation of BravosTurf’s customers as a potentially very serious threat to its business.

You recall that you met with Mr. Cox and BravosTurf’s President after the Act went into effect to discuss revising the non-competes and other restrictive covenants in BravosTurf’s employment agreements.  You ask if Mr. Heyward signed a revised agreement.  As you pose this question to Mr. Cox, you open the file on your computer containing the form restrictive covenant agreement that your firm drafted for BravosTurf.  You see it has both a non-solicitation covenant as well as a non-competition covenant.  You recall that BravosTurf chose to include non-competition covenants in their new agreements, whereas previously BravosTurf steered away from including non-competition covenants due to the risk that they could be found unenforceable and render the non-solicitation covenants in the agreements unenforceable as well.  You note that the non-competition covenant states that it restricts the employee from working within one hundred fifty miles of BravosTurf’s headquarters, which are in downtown Atlanta.

As you quickly scan the agreement on your computer, Mr. Cox confirms that Mr. Heyward signed a new agreement.  A few follow-up questions also confirm the agreement Mr. Heyward signed is substantially similar to the one you are viewing on your computer.

You discuss BravosTurf’s options with Mr. Cox.  The two of you decide that you will send a stern letter to Mr. Heyward reminding him of his obligations under the restrictive covenants in his agreement and demanding that he immediately cease and desist from violating his covenants through his employment with Turf-for-Less.  You draft such a letter.  Among other things, the letter advises Mr. Heyward that BravosTurf will pursue litigation and seek an injunction against him if he does not comply with its demands and cease his unlawful conduct.  The letter also advises Mr. Heyward that BravosTurf will pursue any other causes of action it has against him based on evidence it has obtained or may obtain.  The letter is sent that evening to Mr. Heyward via overnight mail. You also send a letter to Turf-for-Less informing Turf-for-Less of Mr. Heyward’s restrictive covenants with BravosTurf and explaining that BravosTurf believes Turf-for-Less is tortiously interfering with BravosTurf’s contractual relationship with Mr. Heyward through its employment of him.  Of course, your letters also remind both Mr. Heyward and Turf-for-Less of their obligations to preserve relevant evidence relating to BravosTurf’s potential claims.

The Initial Response From Opposing Counsel (“Assessing the Other Team’s Line-Up”)
A few days later, you receive a letter from Scottie Boras, who represents Mr. Heyward.  The letter states that Mr. Heyward will not comply with BravosTurf’s demands for a variety of reasons.  The letter reads as follows:

Your letter states that O.C.G.A § 13-8-50 et seq. (the “Act”) will govern the enforceability of the restrictive covenants in Mr. Heyward’s employment agreement.  However, Mr. Heyward is not an employee within the meaning of O.C.G.A. § 13-8-51(5).  He was not an executive employee for BravosTurf.  O.C.G.A. § 13-8-51(5)(A).  He also was not involved in research and development and he was not and is not in possession of any confidential information important to BravosTurf’s business.  O.C.G.A. § 13-8-51(5)(B).  He also was not and is not in possession of selective or specialized skills, learning, abilities, customer contacts, customer information or confidential information which he obtained by reason of having worked for BravosTurf.  O.C.G.A. § 13-8-51(5)(C). Indeed, Mr. Heyward disputes having such skills, learning, abilities, contacts or information; as such, he is expressly exempted from the definition of an “employee” under the Act.

To the extent Mr. Heyward has any such skills, learning, abilities, contacts or information, he obtained such skills while he was employed with Acme Turf Corporation (“Acme”).  He worked for Acme for several years before joining BravosTurf, and he learned all information relating to the industry as well as the customer relationships referred to in your letter while working for Acme.  As such, Mr. Heyward is not an employee within the meaning of the Act.  The Act therefore does not apply to the employment agreement between BravosTurf and Mr. Heyward.  O.C.G.A § 13-8-52(a)(1) (“The provisions of this article shall be applicable only to contracts and agreements between or among: (1) [e]mployers and employees, as such terms are defined in Code Section 13-8-51”).

Since the Act does not apply, preexisting Georgia case law governs the enforceability of the restrictive covenants in Mr. Heyward’s agreement. H.B. 173 §4. Under such law, as I am certain a practitioner as experienced in this area as you would acknowledge, the restrictive covenants are patently unenforceable and constitute an illegal restraint of trade.  Mr. Heyward therefore will not comply with your demands that he abide by these unlawful restrictive covenants.

Even assuming that Mr. Heyward was an “employee” such that the Act governs the enforceability of the restrictive covenants and assuming that the restrictive covenants are enforceable under the new law, a court would not enjoin Mr. Heyward based on the non-compete in the agreement because of the extreme economic hardship that enforcement of the covenants will impose on Mr. Heyward.  Mr. Heyward has worked in the baseball field turf industry since he graduated from high school and would be unable to find work in a different industry.  Mr. Heyward has three children to support and a mortgage to pay.  His wife also recently lost her teaching job.  He and his family have resided in the Atlanta area for many years and it would be extremely burdensome, both financially and emotionally, to relocate his family, if he were even able to find a position in the baseball field turf industry located outside of the extremely broad, restricted territory in the agreement.  In light of these facts, we seriously doubt that a court would enter an injunction against Mr. Heyward to enforce the restrictive covenants, even if the new law applies to him.  See O.C.G.A. § 13-8-58(d).

Further, even if the Act governs the restrictive covenants and even if a court determines that enforcement of the covenants would not impose an economic hardship on Mr. Heyward (which we dispute), a court will surely not enforce the non-competition covenant because the restricted territory is patently overbroad.  The new law requires that the geographic territory in a non-competition covenant be reasonable.  See O.C.G.A. § 13-8-53(a).  The one hundred fifty-mile radius contained in the non-competition is grossly unreasonable as Mr. Heyward only worked for or represented BravosTurf in limited areas in close proximity to metropolitan Atlanta (while O.C.G.A. § 13-8-56(c)(3) states that the geographic “scope of competition restricted is measured by the business of the employer [rather than by where the employee worked for or represented the employer]…”, this provision only applies “[i]n determining the reasonableness of a restrictive covenant that limits or restricts competition during the course of an employment or business relationship…”  O.C.G.A § 13-8-56).  As the Act does not address what constitutes a reasonable geographical restriction for post-employment restrictive covenants, preexisting case law requiring a territory to be limited to the area where an employee worked for or represented the employer remains in effect.  See, e.g., Howard Schultz & Assocs., Inc. v. Broniec, 239 Ga. 181, 183, 236 S.E.2d 265, 267-8 (1977).

Even if the reasonableness test in O.C.G.A. § 13-8-56(c)(3) applies to post-employment restrictive covenants (which we dispute), because BravosTurf itself does not and has not done business throughout the area encompassed by the restricted territory, the territory does not constitute a “good faith estimate” of the maximum reasonable restricted geographical area.  O.C.G.A § 13-8-53(c)(1).  Further, although the new law allows courts to “blue pencil” over broad restrictive covenants, because the restricted territory is defined as “the area within a one hundred fifty-mile radius of BravosTurf’s headquarters”, rather than by listing the restricted counties or zip codes, it would be impossible for a court to exercise the discretion it has to modify the covenant by striking portions of the restricted territory to make it reasonable.   See O.C.G.A. §§ 13-8-53(d); 13-8-54(b); 13-8-51(11).  As such, the non-competition covenant would not be enforced, in the unfortunate event BravosTurf sought an injunction against Mr. Heyward.

Notwithstanding all of these reasons why we believe BravosTurf would not obtain any injunctive relief if it pursues litigation against Mr. Heyward, Mr. Heyward wishes to resolve this matter amicably.  Please let me know if there are certain customers BravosTurf wishes to propose that Mr. Heyward not solicit for a limited period of time.  Perhaps this can be a starting point for discussions concerning resolution of this dispute.

Analyzing the Issues (“The Scouting Report”)
After reviewing Mr. Boras’ letter, you reach for your file containing your notes and marked-up version of the Act.  You have litigated several restrictive covenant cases with Mr. Boras before, and you know he is not only very competent in this area, but he also has a reputation for being one of the most aggressive lawyers in town.  However, you also know that the Act created more questions than answers, and you have doubts about some of the arguments Mr. Boras has raised.  Nevertheless, you want to review the statute carefully before you discuss the letter with your client.  You quickly type the following list of the issues you feel you and your associate need to get your arms around:

1) Was Mr. Heyward ever an “executive”?  I seem to recall Mr. Cox telling me that Mr. Heyward was recently named the Vice President of Sales.  Is that correct?  If so, this fact could quickly dispose of Mr. Boras’ dubious argument that Mr. Heyward is not an “employee” under the Act.  O.C.G.A. § 13-8-51(5)(A).

2) Did Mr. Heyward have confidential information which is important to BravosTurf’s business?  If so, what was the confidential information and does the information satisfy each paragraph in O.C.G.A. § 13-8-51(3)(A)-(E)?  Further, in light of the statements in Mr. Boras’ letter, we should specifically confirm that the information which Mr. Cox believes is “confidential information” was disclosed to Mr. Heyward or he become aware of it as a consequence of his relationship with BravosTurf (O.C.G.A. § 13-8-51(3)(C)).  We also need to ask him why the information was important to BravosTurf’s business.  Depending on Mr. Cox’s responses, Mr. Heyward may qualify as an “employee” under O.C.G.A § 13-8-51(5)(B).  We should be sure to get as much detail as possible regarding these issues and others from Mr. Cox as we will want to include these facts in BravosTurf’s Verified Complaint if BravosTurf decides to pursue litigation.

3) Did Mr. Heyward have selective or specialized skills, learning, abilities, customer contacts, customer information or confidential information?  Assuming BravosTurf contends he did have such skills, learning, abilities, contacts, and/or information as I expect it will, we need to discuss with Mr. Cox what evidence we can use in the lawsuit and/or at an injunction hearing to establish these facts so we can prove Mr. Heyward was an “employee” under the Act.

4)Does it matter whether Mr. Heyward obtained his skills, learning, abilities, contacts or information while at Acme and not at BravosTurf?  While O.C.G.A § 13-8-51(8) provides that a “key employee” means “an employee in possession of selective or specialized skills, learning, or abilities or customer contacts or customer information who has obtained such skills, learning abilities, contacts, or information by reason of having worked for the employer”, O.C.G.A. § 13-8-53(C), provides that an employee is any other person “… who or that has obtained such skills, learning, abilities, contacts, or information by reason of having worked for anemployer.”  O.C.G.A. § 13-8-53(C) (emphasis added).  Thus, under the plain language of the statute, Mr. Heyward need not have obtained his skills, learning, abilities, contacts or information from BravosTurf – rather, he could have learned those things from any employer.  While the drafters of the statute may have intended something different, the language in the statute is unambiguous.  Thus, as long as Mr. Heyward had skills, learning, abilities, contacts or information which he obtained by reason of working for an employer – no matter which one – shouldn’t the court consider him an “employee” within the meaning of the Act?

5) Is Mr. Heyward able to show economic hardship? I should consider retaining an expert to show that there are plenty of job opportunities for Mr. Heyward.  I should also ask Mr. Cox what BravosTurf knows about Mr. Heyward’s finances.  Does BravosTurf have evidence we can use to disprove Mr. Heyward’s “economic hardship” defense?  Do any employees of BravosTurf know the size of his house?  Does BravosTurf have any information about the vacations he and his family have taken in the last few years?  Does BravosTurf know whether he or his wife own multiple cars, and if so, what kinds?  It sure would help our case if Mr. Heyward lives in a big house in Buckhead, sends his kids to private school and drives a BMW 7-Series.

6) Is Mr. Boras’ “territorial” argument incorrect? As to whether the one hundred fifty-mile radius constitutes a reasonable geographical territory under the new law for a post-employment restrictive covenant, is Mr. Boras trying to capitalize on some sloppiness in the statute?  O.C.G.A. § 13-8-56(2) and (3) provide guidelines for the reasonableness of territories in covenants restricting competition during the course of an employment or business relationship.  O.C.G.A. § 13-8-53(c)(1) and (2) provide how an employer may adequately describe territories in covenants restricting competition after the term of employment, but do they speak to what will constitute a reasonable territory in such covenants?  Does the statute leave room for Mr. Boras’ argument that it fails to instruct as to what constitutes a reasonable geographic restriction for post-term restrictive covenants and that therefore the rules from pre-existing case law must govern the court’s analysis of this issue?  Isn’t it more likely that courts will interpret the Act as easing what constitutes and how a drafter can adequately describe a reasonable territorial restriction?  Contrary to Mr. Boras’ contention, isn’t it unlikely a court will find the geographical restriction in BravosTurf’s non-competition covenant with Mr. Heyward to be fatal to the covenant as a whole?   See, generally, O.C.G.A. § 13-8-53(c)(1) (“…The postemployment covenant shall be construed ultimately to cover only so much of such estimate as relates to the … geographic areas actually involved within a reasonable period of time prior to termination.”).  In any event, it will be important to gather information from Mr. Cox about where BravosTurf conducts business and where Mr. Heyward worked for and represented BravosTurf.

7) Is Mr. Boras’ “blue pencil” argument incorrect?  The Act permits a court to “modify” a covenant that is otherwise void and unenforceable.  O.C.G.A. § 13-8-53(d).  Under the new law, to “modify” a covenant means to bring about a “modification”, and a “modification” means the “limitation of a restrictive covenant to render it reasonable in light of the circumstances in which it was made.  [A modification] shall include: (a) Severing or removing that part of a restrictive covenant that would otherwise make the entire restrictive covenant unenforceable; and (B) Enforcing the provisions of a restrictive covenant to the extent that the provisions are reasonable.” O.C.G.A. § 13-8-51(11) and (12).  Thus, while blue penciling may be one tool at a court’s disposal to modify a covenant to make it reasonable, it does not seem to be the only one.  A reasonable reading of the statute indicates the Act vests courts with authority to take steps to modify a covenant such that it is reasonable and can be enforced.

Strategic Discussion with the Client (“The Meeting on the Mound”)
Having carefully analyzed the issues raised in Mr. Boras’ letter, you call Mr. Cox.  You walk him through your analysis of Mr. Boras’ letter and you obtain information from Mr. Cox to help you further analyze Mr. Boras’ arguments.  Based on information he provides, you are confident Mr. Heyward will be considered an “employee” under the statute as at a minimum he had access to names of customers and price lists, both of which are identified as potentially being confidential information under O.C.G.A. § 13-8-51(3)(E).  You also learn from Mr. Cox that Mr. Heyward earned at least $250,000 per year for the last five years, received a $130,000 sales bonus two months before he left BravosTurf and took at least two international vacations per year the last few years.  He also lives in a nice house in Alpharetta and drives a Mercedes E-class.  Mr. Cox is thus justifiably skeptical that enforcement of the one-year non-competition covenant would cause Mr. Heyward any economic hardship.

Mr. Cox asks you his chances of obtaining an injunction against Mr. Heyward.  He also lets you know that BravosTurf is not interested in resolving the matter unless Mr. Heyward and Turf-for-Less agree to discontinue their relationships with the BravosTurf customers he already solicited and Mr. Heyward agrees to enter into a Consent Order whereby he agrees to fully comply with the non-solicitation provision.  You explain to Mr. Cox that while the Act is imperfect and untested and allows lawyers representing employees to assert some arguments against employers seeking to enforce restrictive covenants, just as Mr. Boras has, you are confident in BravosTurf’s right to obtain at least some injunctive relief if it chooses to try to enforce Mr. Heyward’s restrictive covenants (though this could also depend on what judge is assigned to the case).  Mr. Cox tells you to broach a resolution with Mr. Boras but to proceed with preparing and filing a lawsuit against Mr. Heyward.

Pre-litigation Negotiations (“Staring Down the Batter”)

You call Mr. Boras and tell him that BravosTurf is willing to forego enforcement of the non-competition covenant if Mr. Heyward and Turf-for-Less will stop doing business with the BravosTurf customers that Mr. Heyward dealt with during his employment with BravosTurf and Mr. Heyward will agree to a Consent Order concerning the non-solicitation provision.  Mr. Boras says he will relay your offer but expects that while Mr. Heyward remains open to agreeing not to solicit certain customers whom he and Turf-for-Less are not already doing business with, if that is unacceptable to BravosTurf and BravosTurf decides to file suit to try to enforce the covenants, Mr. Heyward will likely just “take his chances” on the outcome.

During the call, Mr. Boras states that if BravosTurf tries to enforce the restrictive covenants through legal action, in addition to the various reasons contained in his letter as to why the covenants should not be enforced, Mr. Heyward will also assert a challenge to the constitutionality of the amendment to the Georgia Constitution allowing the Act to take effect, on the grounds that the language of the enabling referendum was misleading and deceptive.  You have been aware of potential challenges to the referendum language but what you have read in the non-compete blogosphere confirms your analysis that this argument is an uphill battle.  As you are discussing this issue with Mr. Boras, you scribble a note on your legal pad to have your associate begin preparing a bench brief on this issue for the imminent TRO hearing.

Preparing the Pleadings (“Bringing the Heat”)
You and your associate begin preparing a complaint, a motion for temporary restraining order and preliminary injunction, and a supporting brief.  You pepper Mr. Cox and Mr. Heyward’s supervisor at BravosTurf with e-mails about the details of Mr. Heyward’s customer relationships, customer good will, and training.  You explain to BravosTurf that the Act requires an employer to plead and prove the existence of one or more legitimate business interests to justify the restrictive covenants and that your questions are intended to gather information about how BravosTurf can establish in its complaint that it has legitimate business interests.  O.C.G.A. § 13-8-55; O.C.G.A. § 13-8-51(9)(C), (D), and (E).  You tell Mr. Cox one way that BravosTurf may establish it has a legitimate business interest in enforcing the covenants is by showing that BravosTurf has “substantial relationships with specific prospective or existing customers, patients, vendors, or clients.”  O.C.G.A. § 13-8-51(9)(C).  You tell Mr. Cox that while the Act is unclear as to what is meant by a “substantial” relationship and while you know BravosTurf is reluctant to specifically identify its customers or the financial reasons why BravosTurf believes its relationships with its customers should be considered “substantial”, you believe it is important that BravosTurf meet the prerequisites under the Act, particularly since Mr. Boras and Mr. Heyward appear bent on defending aggressively and will undoubtedly use whatever arguments they can conjure up based on the Act to try to capitalize on any potential loopholes in BravosTurf’s pleadings.  To address BravosTurf’s concerns about disclosing its customer relationships and financial information regarding the relationships, you propose to Mr. Cox that you will request permission from the Court to have the Clerk file BravosTurf’s pleadings under seal.  When he learns that including information in the complaint which will satisfy the prerequisites under the Act (including information showing that BravosTurf conducted business throughout the one hundred fifty-mile radius for its headquarters and that the geographic territory in the non-competition covenant is therefore reasonable), will shift the burden of proof to Mr. Heyward to demonstrate that the covenant is unreasonable, Mr. Cox approves of your decision to try to file the action under seal.  O.C.G.A. § 13-8-55.

Having spent the weekend preparing and finalizing the complaint, motion, brief and supporting affidavits containing all of your evidence, and your evidence regarding the customers Mr. Heyward has taken, you send your associate to the courthouse on Monday morning to file everything and to attempt to get a TRO hearing scheduled.   She also files the motion for expedited discovery you have prepared given that you are certain you will want to quickly conduct discovery regarding the defenses Mr. Boras has asserted that Mr. Heyward will raise, particularly if the case moves forward swiftly to a preliminary injunction hearing.  Your associate returns from the courthouse and reports that Judge Fay Vincent’s chambers called Mr. Boras while she was there to confirm his availability for a TRO hearing on that Friday.

The TRO Hearing (“The Payoff Pitch”)

You begin preparing your outline for the hearing.  You include in your outline responses to the various counter-arguments you know are coming from Mr. Boras concerning why the Act does not apply and why the Court should not enjoin Mr. Heyward.  Mr. Boras files his opposition brief that Thursday.  As you are fortunately prepared to address most of his arguments, the last-minute preparation is modest.

You arrive in Judge Vincent’s courtroom on Friday morning.  Judge Vincent starts by telling the parties that he has read the parties’ briefs and that this case is not his “first rodeo” in the non-compete realm. He tells the attorneys he has handled many of these cases in his twenty years on the bench but none under the Act.  As he says he is pleased that the Act finally allows him to require employees to honor and abide by the agreements they sign, you look out of the corner of your eye to gauge the reaction of Mr. Cox, who is attending the hearing with you.  Judge Vincent also says he is equally concerned that the Act may encourage employers to overreach in their agreements because judges can blue-pencil covenants to make them more reasonable.  Your optimism turns slightly out of fear that the Judge may think BravosTurf’s covenants are unreasonable.

Judge Vincent then states that he does not want to hear anything further from the attorneys regarding the ballot referendum.  He says he has briefly reviewed Mr. Heyward’s arguments for why the referendum is unconstitutional and he has reviewed the order entered a week ago by his colleague a few floors below which declared the Act unconstitutional, a copy of which Mr. Heyward attached to his brief.  He says he respectfully disagrees with his brother on the bench that the referendum was unconstitutional, but that he will not make a final ruling on that issue and would allow further argument and even evidence on it at a later stage in the case.

Judge Vincent hears the parties’ arguments, including arguments based on the affidavit submitted by Mr. Heyward in support of his economic hardship defense.  Judge Vincent says he believes Mr. Heyward is clearly an employee within the meaning of the Act but has doubts that the geographical restriction in BravosTurf’s non-competition covenant is reasonable.  He believes some discovery and presentation of evidence is necessary before he can rule on whether it is over broad and if and how it should be modified.  Picking up on an argument you made, Judge Vincent says he is reluctant to decide Mr. Heyward’s economic hardship defense without giving you the opportunity to obtain financial documents from and depose Mr. Heyward regarding his financial wherewithal.  After admitting he is unsure what the most appropriate interim relief to craft is, Judge Vincent decides to enter a temporary restraining order permitting Mr. Heyward to work for Turf-for-Less in a non-sales capacity and enjoining Mr. Heyward from directly or indirectly violating the non-solicitation covenant.  Judge Vincent schedules a preliminary injunction hearing for three weeks later and authorizes the parties to conduct expedited discovery during that period.

Discovery (“Digging In”)

You and your associate spend the next three weeks embroiled in expedited discovery.  Mr. Boras takes depositions of two of Mr. Heyward’s supervisors, one of whom makes some somewhat damaging admissions regarding the areas in which BravosTurf does business that you are concerned may pose a problem for enforcement of the one hundred fifty-mile radius.  The other supervisor gives great testimony about the training, skills, and confidential information that Mr. Heyward obtained while at BravosTurf.

You depose representatives of two customers whom BravosTurf believes Mr. Heyward solicited and whom Mr. Cox says BravosTurf is unlikely to ever win back their business.  One of them admits Mr. Heyward solicited them to move their business from BravosTurf to Turf-for-Less.  The other testifies his company approached Mr. Heyward when they heard through the grapevine that he had left BravosTurf and taken a position at Turf-for-Less.  As this customer offers this testimony, you recall that BravosTurf chose to have its new non-solicitation covenants prohibit employees from accepting unsolicited business.  When you were revising the covenants for BravosTurf, you discussed with Mr. Cox how under Georgia’s pre-existing case law, a non-solicitation covenant could not prohibit a former employee from accepting business from a customer without any prior solicitation by the former employer and the Act does not appear to have changed this rule.  See, e.g., Waldeck v. Curtis 1000, Inc., 261 Ga. App. 590, 583 S.E.2d 266 (2003) (“…. a non-solicitation provision may not contain a bar on the acceptance of business from unsolicited clients”).  However, you also advised BravosTurf that, if a court ever applied the Act and found that BravosTurf’s non-solicitation covenant could not lawfully restrict its employee from accepting unsolicited business, the court could also simply blue pencil the “acceptance” language out of the agreement.  BravosTurf therefore chose to have its non-solicitation covenants prohibit both solicitation and acceptance of business from former customers.  Nevertheless, you do not probe deeply into this issue at the customer’s deposition, as to date Mr. Boras has not raised this issue and you do not want to risk bringing it to his attention.

Of course, you also depose Mr. Heyward.  When at Mr. Boras’ instruction Mr. Heyward refuses to answer questions regarding his finances, savings, and spending patterns, you are forced to call Judge Vincent’s chambers with a request for a telephone hearing in the middle of the deposition.  When Judge Vincent finally gets on the line and says he has only five minutes because he is in the middle of a hearing in a death penalty case, you explain the dispute and that you believe you are entitled to conduct a thorough examination of Mr. Heyward regarding his finances given that he has asserted that the court should not enforce his covenants due to the economic hardship that would be imposed on him.  O.C.G.A. § 13-8-58(d).  Judge Vincent says he will not give you carte blanche to examine Mr. Heyward regarding all of his finances and assets and he believes you should limit your examination to what finances and liquid assets Mr. Heyward has available to live off of in the event that the court enforced the year-long non-competition covenant.  You and Mr. Boras spar over the meaning of Judge Vincent’s ruling for the rest of Mr. Heyward’s deposition.  After the deposition, you promptly file a motion to compel Mr. Heyward to answer certain questions he refused to answer, but with the injunction hearing three days away, you are doubtful you will get answers to these questions prior to the hearing.

The Preliminary Injunction Hearing (“The Bottom of the Ninth”)

The day of the injunction hearing arrives.  Both parties present their evidence.  Mr. Boras focuses his presentation on his arguments that the geographic territory in the non-competition covenant is unreasonable and that enforcement of the non-competition covenant would impose a severe economic hardship on Mr. Heyward and his family.

Judge Vincent expresses doubts that the one hundred fifty-mile radius in the non-competition covenant is reasonable and asks for additional briefing on the issue of whether its overbreadth would render the non-competition covenant unenforceable in its entirety because the territory cannot be “blue penciled” based on how it is drafted, or whether he can reform the territory to an area he finds is reasonable.  The parties submit their post-hearing briefs and competing proposed orders.

The Order (“Post Game Wrap-Up”)

A week later, you receive an order from the court.  You call Mr. Cox to explain that Judge Vincent enjoined Mr. Heyward from violating the non-solicitation covenant but declined to enjoin him with respect to the non-competition covenant based on his ruling that he could not “blue pencil” the geographic territory, which he found to be overbroad.  You tell Mr. Cox that you think Judge Vincent’s ruling that he cannot “blue pencil” the geographic territory and that the Act does not permit him to judicially modify the territory to an area he finds is reasonable is erroneous.  You explain that while you believe this error gives BravosTurf strong grounds to appeal the order (or to cross-appeal if Mr. Heyward appeals the injunction entered against him with respect to the non-solicitation covenant), given the discretion judges are afforded in entering injunctions, there is no guarantee of a reversal, as the Court of Appeals may find it was within Judge Vincent’s discretion to deny BravosTurf any injunctive relief based on the non-competition covenant.  You explain that until Georgia’s appellate courts provide guidance on interpreting the Act, it is difficult to predict how the appellate courts will decide this issue and others.

You also ask Mr. Cox to begin thinking through BravosTurf’s strategy for moving forward in this case.  You remind him that since Judge Vincent has enforced the non-solicitation covenant, if BravosTurf wishes to continue to litigate against Mr. Heyward, it may pursue claims for damages against him for the business lost from customers he has already taken.

You mention that while you believe Judge Vincent’s ruling on whether he could have judicially modified the territory is wrong and that you are confident that the Georgia appellate courts will eventually vindicate your analysis of the Act with respect to this issue, if BravosTurf wishes to err on the cautious side by revising its agreements, it could revise its non-competition covenants to specifically list the counties, cities or zip codes in which post-employment competition is restricted.  You explain to Mr. Cox that if the agreements are drafted in this manner, any extraneous areas could unquestionably be stricken if the territory was ever found to be overbroad.  You ask Mr. Cox if he would like to schedule a time to meet to discuss further revisions to BravosTurf’s employment agreements.

Finally, you also tell Mr. Cox that later that day you are sending him your firm’s month-end invoice for the case.  You let him know that the amount of the invoice is greater than invoices for the initial stages of non-compete litigation matters that you have handled for BravosTurf in the past.  You explain to Mr. Cox that while the Act makes it substantially easier for employers like BravosTurf to obtain some injunctive relief against rogue employees like Mr. Heyward, unfortunately, litigating non-compete matters under the Act will more often than not be significantly more expensive than litigating under Georgia’s pre-existing restrictive covenants case law.

As this hypothetical shows, litigating restrictive covenant cases under the Act will present a host of unknowns.  There are numerous legal issues raised by the Act, many of which are not mentioned in this article, which will require appellate interpretation and clarification and/or legislative revision.  Furthermore, while the Act makes it easier for employers to obtain some relief against former employees, results under the Act are going to be inherently unpredictable for quite some time.  This lack of predictable outcomes for cases litigated under the Act also presents a challenge from a client management standpoint, as does the likely added cost associated with litigating cases under the Act.

In time, practitioners in the area of Georgia restrictive covenants law will of course know much more about litigation under the Act.  In the interim, while this article attempts to provide a glimpse into what litigation under the Act might look like, practitioners should expect the unexpected and anticipate a few curve balls along the way.

BFV Perspectives, Noncompete & Trade Secrets, Sports Fans Guide 2 HR, | Mar 14, 2011
Benjamin I. Fink
Benjamin I. Fink

Benjamin Fink is known for his work in noncompete, trade secret and competition-related disputes. A shareholder at Berman Fink Van Horn, Ben concentrates his practice in business and employment litigation.