The “American Rule” generally requires each party in litigation to bear its own attorneys’ fees. In most states, parties may sidestep this default rule by contractually agreeing to a unilateral fee-shifting provision. Some states have enacted legislation that will convert unilateral fee-shifting provisions into reciprocal or bilateral fee-shifting provisions;[1] however, Georgia is not one of these states. In Georgia, where there is no such statute, courts typically enforce unilateral fee-shifting provisions in valid, enforceable contracts.
Where do we see unilateral fee-shifting provisions in contracts?
We commonly see unilateral fee-shifting provisions in the following types of contracts:
- Commercial Contracts: To deter breaches and ensure the prevailing party can recover fees.
- Real Estate Agreements: To provide remedies in disputes over transactions.
- Employment Agreements: To enforce non-competes and other restrictive covenants and to protect confidential information and trade secrets.
In these contexts, a fee-shifting provision often presents one important consideration for litigants because it can shift the financial burden and increase the stakes of litigation.
A recent case study.
In a recent Georgia case, an adverse party argued that a unilateral fee-shifting provision in a non-compete agreement was void as violative of public policy. [2] In essence, they argued that one-sided attorney fee provisions are unconscionable in employment agreements because they lead to de facto enforcement of unreasonable restrictive covenants by placing all the risk on the employee and none of the upside.
The argument did not hinge on the enforceability or not of the restrictive covenants. Instead, the opponent argued that unilateral fee-shifting provisions themselves violate public policy in employment contexts. The argument was interesting enough, and if litigated, would seem to present a question of first impression for the Georgia appellate courts.
What do the legal authorities tell us?
Georgia courts generally uphold the parties’ intent and provide great deference to the clear and unambiguous terms of a contract. See, e.g., Tiffany & Tomato, Inc. v. Wells & McElwee P.C., 358 Ga. App. 311, 316–17 (Ga. Ct. App. 2021) (“In the absence of a controlling statute, a party’s entitlement to attorney fees under a contractual provision is determined by the usual rules of contract interpretation.”); see also Rash v. Toccoa Clinic Med. Assocs., 253 Ga. 322, 326 (1984) (“It is the policy of this state to uphold and protect valid contractual rights and obligations.”).
Other courts presented with the same types of arguments have declined the invitation to invalidate a unilateral fee provision on public policy grounds in the absence of a statutory prohibition. See, e.g., Ankeny Hotel Assocs., LLC v. OSK X, LLC, 663 F. Supp. 3d 947, 962, n.15 (S.D. Iowa 2023) (“The Court is persuaded by the fact that, in this case, Iowa has not prohibited or regulated these types of contract provisions. Determining public policy in this sphere is the responsibility of the Legislature and state courts, which have only confirmed that parties are permitted to contract for fee-shifting. The Court will decline AHA’s invitation and the attorney’s fees provisions will be enforced as the parties contracted.”).
The Eleventh Circuit Court of Appeals has hinted it tends to agree with this approach, at least when the agreement involves a prevailing party requirement. See, e.g., Davis v. Nat’l Med. Enter., Inc., 253 F.3d 1314, 1321 (11th Cir. 2001) (enforcing prevailing party attorney fee provision under Florida law) (“When the parties to a contract determine that the prevailing party in any litigation shall be entitled to attorneys’ fees, it is the court’s duty to enforce the attorneys’ fee provision in the parties’ contract.”) (citations omitted); cf. In re Checking Acct. Overdraft Litig. MDL No. 2036, 685 F.3d 1269, 1281–82 (11th Cir. 2012) (invalidating an unconditional cost-and-fee-shifting provision under South Carolina law) (citations omitted).
What does it all mean on balance?
Employers need tools at their disposal to protect their most valuable assets including their human resources and their confidential, proprietary, and trade secret information. Therefore, it logically follows that when employees agree to terms of employment, their prospective employers sometimes include a unilateral fee-shifting provision (e.g., a prevailing party attorney fee provision) that may be triggered in the event of a breach of the material terms of employment.
This does not leave an employee without options or recourse. First, if the employer is not willing to negotiate, the employee can refuse or reject the terms of employment and find a different job. Second, whether to breach or not to breach is squarely within the employee’s control and something the employee should consider (with counsel) both prior to signing the employment agreement and prior to taking action that may violate the agreement. Third, the employee can negotiate for releases as part of a separation package. Just to name a few.
There are also some Georgia statutes that may help employees level the playing field when up against the leverage of a unilateral fee-shifting provision, but they are imperfect. For example, the employee litigant may consider invocation of O.C.G.A. § 9-11-68 (“Offers of settlement; damages for frivolous claims or defenses”). As described in a recent blog post by Olivia B. Landrum, this can be an effective cost and fee-shifting mechanism but only applies to tort claims or breaches of contract premised entirely on a tort claim in the same action. Defendants may also consider invoking O.C.G.A. § 13-6-11 (“Recovery of Expenses of Litigation Generally”), which permits an award of attorney fees where a litigant has acted in bad faith, has been stubbornly litigious, or has caused unnecessary trouble and expense, but only where the defendant brings a counterclaim and includes a claim for fees.
In other words, while there are mechanisms under Georgia law to help counterbalance the threat of unilateral attorney fees and over-aggressive enforcement of employment agreements and other commercial contracts, they often are not the “Silver Bullet” a client is looking for and often leave employees in difficult, defensive litigation postures.
Conclusion
Unless and until the Georgia legislature takes action to change the status quo, Georgia courts will likely decline any invitation to judicially invalidate or modify unilateral fee-shifting provisions, assuming they include a “prevailing party” requirement. Because a unilateral fee-shifting provision can be a powerful tool in litigation, parties asked to sign contracts with unilateral fee-shifting provisions or faced with potential enforcement of such contracts should consult with an experienced attorney to understand their options and weigh the risks.
[1] See, e.g., California, Cal. Civ. Code § 1717(a); Florida, Fla. Stat. Ann. § 57.105(7); Hawai’i, Haw. Rev. Stat. Ann. § 607-14; Montana, Mont. Code Ann. § 28-3-704; Oregon, Or. Rev. Stat. § 20.096(1); Utah, Utah Code Ann. § 78B-5-826; and Washington, Wash. Rev. Code. Ann. § 4.84.330.
[2] Prior to enactment of the GRCA, O.C.G.A. § 13-8-50 et seq., Georgia courts often invalidated non-compete agreements as adhesion contracts that constituted illegal restraints of trade; however, post-2011, agreements that restrict competition are expressly permitted and generally enforced against certain types of employees as long as they are reasonable in terms of time, geographic area, and scope of the prohibited activities.
Business is in Olivia Landrum’s DNA, but law was always in her future. Growing up in a family business and concentrating her undergraduate studies in finance was just the beginning. From an early age, Olivia also knew she wanted to study law. Today, as a Litigation Associate, Olivia’s background empowers her with the ability to understand both the business and the legal side of a matter.
A graduate of the University of Georgia School of Law, Olivia was a member of a winning Moot Court Competition team, served as Executive Notes Editor for the Georgia Journal of International and Comparative Law and was selected for the Clarke-Carley (formerly Lumpkin) Inn of Court. She received her Bachelor of Science in Finance from Auburn University. Olivia is also a proud alumni of Berman Fink Van Horn’s Summer Associate program.
Outside of the office, Olivia enjoys going for walks and exploring all that Atlanta has to offer, especially its neighborhoods, parks and local restaurants. She also enjoys playing tennis, pickleball and Mahjong.
