Wednesday, August 25, 2010

Restrictive Covenants

With the economy lagging, and jobless rates still hovering at around 10%, many employers are finding that having employees sign a restrictive covenant agreement is a good idea.  Restrictive covenants can take several forms, including a covenant not to compete (non compete), a confidentiality provision, a covenant not to solicit co-workers to leave their employ and a covenant not to solicit customers.  In many instances, an employer will include one or move restrictive covenants in an employment agreement.

In Georgia, the general rule is that a restrictive covenant in an employment agreement is enforceable when it is limited in scope, duration and geographic territory.  Determining a reasonable scope, duration or geographic territory is usually a case-by-case analysis.  Restrictive covenants that lack reasonable scope, duration or a geographic territory are ordinarily deemed unenforceable.  In an employment context, Georgia courts may not "blue pencil" an agreement, meaning they cannot rewrite the restrictive covenants to scale back the duration, if it's too long, for example. Instead, restrictive covenants tend to be an all or nothing proposition; either they are written properly under Georgia law or they are unenforceable in their entirety.

So, employers looking to retain customers, protect confidential information, and who want to retain valued employees should consider having counsel draft a restrictive covenant agreement for all employees.  Continued employment may be sufficient consideration for signing the agreement, so there's no problem with asking an existing employee to sign one.

Obviously, the value of a well-written restrictive covenant agreement is to deter and prevent any employee who is laid off or quits from going down the street to a competitor with the promise to bring on the company's customers or to bring other staff with them.  In addition, a confidentiality provision can prevent a former employee from taking customer lists, pricing and other sensitive data to a competitor. 

Also, since the job market is tight, some former employees will stop looking for another job and will instead start their own business, essentially becoming a new competitor.

In short, if a company wants to hold onto its market share or to valued employees and customers, having employees sign a restrictive covenant agreement makes good business sense.

1 comment:

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