New law would ease enforcement of noncompete agreements

When Brooke Wilson's general manager left his job at her moving company franchise July 30, she thought a noncompete agreement that he had previously signed would prevent him from using his inside knowledge about the business to compete against her.

But Wilson, who owns Two Men and a Truck franchises in Peachtree City and Stockbridge, learned a clause in her noncompete contract was too vague, rendering the whole document unenforceable and leaving him free to set up his own moving company.

"It's difficult to stomach that I’ve essentially trained someone who knows all my trade secrets, quality control, prices and who will now work for someone else to compete against me or start a company to directly compete against me," she said.

The Georgia Legislature enacted a law this year that would make such agreements easier to enforce and give judges more leeway when those contracts wind up in court.

Such agreements and concern over the protection of trade secrets recently gained national attention when Hewlett-Packard sued Mark Hurd, its former chief executive, after he took a job with rival Oracle as president of one of its business units.

An earlier attempt by the state Legislature to enact a similar noncompete measure in the 1990s was struck down when the Georgia Supreme Court ruled it conflicted with a provision in the state constitution. This November, Georgia voters will be asked to amend the state constitution to resolve that conflict. Otherwise, the new law will be invalid.

Proponents, which include the Georgia Chamber of Commerce, say the new law would bring Georgia in line with the majority of U.S. states with similar statutes, make it easier for businesses to protect trade secrets and make the state more competitive in business recruitment.

Under current law, if any one clause in such agreements is illegal, the whole contract is voided. Georgia is one of eight states where that is the case.

The legislation that was enacted will, if voters approve the constitutional change, allow judges to strike specific clauses that are illegal from a noncompete or do-not-solicit agreement while holding the rest of it enforceable.

"In addition to hurting Georgia's economy and competitiveness, the current law is a mishmash of convoluted opinion," said state Rep. Kevin Levitas, D-Atlanta, the chief sponsor of the legislation. "It was not balanced. This is an attempt to bring uniformity, predictability and reasonable balance back in the areas of Georgia employment law."

But opponents say Georgia's existing rules give enough protection to companies while preserving the rights of employees to find new jobs in their fields of expertise. The new provision, they say, would make it harder for workers to get jobs or start their own businesses. That, they say, would hurt the economy.

"The big picture is: Is the overall economy going to be better off by making these agreements easier to enforce or not?" said Charles A. Hawkins, a labor lawyer and partner at Troutman Sanders. "It basically prohibits them from making a living in their chosen profession."

States with laws that favor employees in such disputes tend to fare better than those that are more restrictive and side with the employer, he said, citing a 2008 study by the University of Toronto's Rotman School of Management on the impact of these agreements.

The current law encourages employers to be as specific as possible. The change, he said, would give employers the ability to make these agreements wide-ranging in scope and reach.

But Levitas says the new law has something of a fail-safe: Judges can nullify a noncompete agreement, even if it is completely legal, if it would cause undue economic hardship to the person who signed it.

Noncompete contracts that now wind up in the courts often seek to impose unreasonable restrictions on the employee, Hawkins said. The change would invite more litigation, not less, he said.

Such was the case with David Glover, managing director of the Wellspring Group, an Atlanta financial advisory firm.

Glover and several other Wellspring executives were locked in battle last year with their former employer, who sought to enforce a noncompete agreement based on geographic restrictions. After three months of legal wrangling, the case was resolved in Wellspring's favor.

"Certainly, there's a place for employment agreements and noncompetes, but I'd also contend that we all have a right to work," Glover said, adding the agreements he signed were drafted more than 20 years ago in another state. "In an industry such as ours, your clients rely on us to give them advice regarding their financial affairs. Geographical restrictions would hinder that, and the ability of us serving our clients would have been diminished by that."