What is a Non-Compete Agreement?
A Non-Compete Agreement, NCA, also known as a Non-Compete Clause, is a contract in which one party, normally an employee, agrees not to start a business in the same field as another party, normally the employer. This type of agreement restricts the employees or agents from becoming a competitor for a certain period of time within a geographical area. This agreement may be required for someone who is a key employee of a large company. The clause prevents the employee from leaving the company to compete with the employer. Often, the Non-Compete Agreement is signed at the initial employment contract.
Elements of the Non-Compete Agreement
For the Non-Compete agreement to be enforceable, it must contain at least the following three elements:
Most Non-Compete Agreements will be limited within a certain state or for a certain geographical area, so the clause should include the area in which the party cannot create a competing business. This could be a small surrounding area, an entire state, or even multiple states.
The NCA must be limited in time otherwise; the court may intervene to blue pencil the agreement for a period of no more than two years. Georgia is a blue pencil state, which means that if any part of the agreement is found to be unenforceable, then the entire agreement voided not just the part in question. An extended period of time will not be enforceable as it would unduly limit the employee’s ability to work.
Scope of Activity
The restrictions are limited to the area of expertise that falls within the employer’s field of business. As such, any NCA must be narrowly defined and specific enough to as to the activities the employee can and cannot do after he leaves his employer.
Why should you be concerned as an employee?
As an employee, the NCA restricts your ability to move forward and establish your own business specifically if the line of business you are intending to establish is similar to that of your employer, work for a competitor or use the knowledge and the knowhow for the benefits of the new employer. Breach of the NCA may have severe consequences on the employee’s future employment and of course his/her reputation in the industry.
The law in Georgia allows companies not only to sue for breach of contract, NCA, but also allows Georgia businesses to sue for lost revenue.
How critical is the Non-Compete to employers?
Employers in general, especially start ups and midsize companies, are cognizant of the need to have most employees sign a non-compete agreements. The NCA is a critical document in protecting employers’ trade secrets and busine
sses. Employers must deal with the dilemma of spending so much money and resources to educate and train their employees to benefit the company on one hand, and on the other hand, not to equip employees to compete with the company. Employers strive to keep their knowledge, expertise, and resources so they may capitalize on their investment.
Enforceability of the Non-Compete Agreement?
First and foremost, an employee should look and consider the NCA as a contract between the employee and the employer. If the employee breaches the contract, the employer may have a cause of action, lawsuit, against the employee. Georgia courts will not hesitate to enforce the NCA if it is reasonable and within the four corners of the law. A reasonable NCA contains a time limit, defined scope, and within specific geographical area.
In considering a NCA lawsuit, Courts consider variety of public policy factors to determine whether the NCA is enforceable and to what extent. Some of the public policy concerns are the need to work, survive, and support one’s family. Others are the maintenance of free economy and the spirit of entrepreneurship.
Although the Non-compete agreement is restrictive in nature, this issue is best dealt with at the outset, when you are negotiating your employment contract. In other words, the parties should consider this agreement like any other contract they negotiate; negotiate the terms that you are comfortable with and move forward accordingly. Agreements are upheld for a longer period of time and damages are minimized when parties are able to live with what they agreed to do for the mutual benefits of all parties involved.
Disclaimer: Nothing in related to the enclosed information should be construed and or considered as legal advice for any individual, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Business Law.