Practical Aspects to Protecting Your Clients With Restrictive Employment Covenants

• Jurisdiction: Georgia,United States
• Citation: Vol. 7 No. 1 Pg. 0001
• Pages: 0001
• Publication year: 2001

Georgia Bar JournalVolume 7.

GSB Vol. 7, No. 1, Pg. 1. Practical Aspects to Protecting Your Clients with Restrictive Employment Covenants

Georgia State Bar Journal
Vol. 7, No. 1, August 2001

"Practical Aspects to Protecting Your Clients with Restrictive Employment Covenants"

By Bryan L. Tyson

Imagine the scene: after years of toiling away behind a desk and in the library, you finally ditch your stuffy law office and start your own business in one of those neat loft office spaces (complete with pinball machines). You've put together a good business plan, secured initial financing and possess some can't-miss ideas for improving the way that e-commerce is conducted. Of course, you need some help running the whole enterprise (since you're new to the business), so you hire a CEO who will help mold your company's direction and shepherd it into profitability Things are looking pretty good for the first four months although you're struggling with the usual new business problems of managing cash flow, finding customers and maneuvering toward an initial public offering. But, overall things are going well, until your CEO walks in one morning and announces that he's quitting and going to work for one of your competitors. While this is a substantial set-back, that's the rough-and-tumble world of business Besides, three more weeks and you'll begin marketing your revolutionary e-commerce solution to your customers. Then, two weeks later, right before the big day, you wake up and grab your copy of the morning paper. Turning to the business section, you gasp when you see your former CEO's picture on the front page next to an announcement of his recent launch of yourrevolutionary e-commerce idea! You storm into the office, kick your pinball machine and throw the paper on your desk. Noticing that few people seem to be at work, you grab the first person you can find to inquire why everyone is late. .Oh, they've all left to join your former CEO. He and his new company have been calling here over the past several weeks trying to recruit personnel. They were offering $5,000 more than what they knew everybody here was making.. 'so, is everyone gone?. you ask, bewildered. .Oh no, just the people that were the lead performers. I saw the former CEO looking at the performance reviews in the HR department a few days before he left, so I guess that's how he knew whom to call. Then the phone rings; it's your largest customer: .Former CEO has just offered us 10 percent off the price you're charging us, and they have the same technology and capabilities you've been touting, so we're going with his company now.. You put down the phone, pick it up again, and call your lawyer. Sounds like something out of a legal mystery novel, right? Not exactly. In fact, Cambridge Technology Part- ners Inc., a computer services company, recently sued its former CEO and founder, claiming that he competed against the company and recruited employees for a new company, all in violation of a contractual agreement.1 iXL Inc., a consulting unit of Atlanta-based iXL Enterprises, sued a former in-house recruiter, alleging that he had improperly solicited iXL employees for a new company.2 More recently, Monster.com, the online job site, sued its former president alleging, among other things, that he raided Monster's employees in an attempt to obtain confidential and proprietary information.3 Such matters are not, however, confined to high-tech or Internet employers. Other recent cases have involved allegations that a fireworks salesman4 and a pizza box salesman5 improperly competed against their former employers. Because all employers generally have employees, customers and important business information, all employers are subject to having these valuable assets misappropriated. This article discusses the practical aspects of preventing such misappropriation by drafting and enforcing restrictive employment covenants, which are generally defined as contractual arrangements with employees that prohibit certain types of post- employment activity.6 This article will discuss how employers should decide what information should be protected with restrictive employment covenants, which employees should be asked to sign restrictive covenants and what types of restrictive covenants may be appropriate in various situations. The article then examines some particular aspects of Georgia restrictive covenant law of which employers should be aware. Finally, the article offers some practical advice on drafting, updating and enforcing restrictive employment covenants.

One Size Does Not Fit All

The first question an employer should ask when considering the use of restrictive covenants is .what information or relationships do I want to protect?. Obviously, what's important to an individual business . and thereby what's worth protecting with restrictive employment covenants . will vary depending on the type of business. There are, however, several general categories of information that all employers should consider protecting: customer relationships; financial data; employee relationships; proprietary or confidential business information; and intellectual property. By entering into restrictive employment covenants with the personnel that have significant access to this information, an employer can ensure that such information is protected. But what types of restrictive covenants will be most effective in protecting this information? Consider the following general overview of the main types of restrictive covenants. A non-competition. covenant generally restricts an employee from working for a competitor of the employer, while a .non-solicitation. covenant generally prohibits an employee from soliciting customers of the employer. A .non-piracy. covenant prohibits an employee from soliciting employees of the employer.7 A .non-disclosure. covenant prohibits a former employee from disclosing confidential, proprietary or trade secret information or materials of the former employer.8 Finally, a 'return of property. covenant provides that an employee will return all tangible forms of the employer's property upon termination of the employment relationship. Determining exactly which covenants should be used in a given situation will depend on both the kind of information the employer seeks to protect, as well as the job responsibilities of the employee. By analyzing what is important to a business, and then determining who in the company has access to or interacts with that interest, you can determine which employees should be asked to sign restrictive covenants, as well as which types of covenants would be best to use with various employees.

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