KillHB173: Are You In The Crosshairs?

So let’s start the week off looking at who is specifically targeted by the Georgia Restrictive Covenant Act (HB173) – and the answer is virtually anyone who works in the tech field. It focuses most clearly on salespeople – who, in theory, should be most effective at convincing friends and colleagues to vote NO. In fact, this sentence actually exists in the bill: “In addition, non-solicitation covenants could permissibly restrict a former employee from merely accepting business from customers.” Wow!

Before we get too deep into the implications, take a quick read on this excerpt from the legislation itself:

The Act expressly authorizes non-compete covenants in employment agreements, if reasonable in terms of time, geographic area, and scope of activity.  However, such covenants may only be enforced against employees who meet one or more of the following tests:

(a) customarily and regularly solicit customers or prospects;

(b) customarily and regularly engage in making sales;

(c) have a primary duty of managing the enterprise (or a department or subdivision), direct the work of two or more other employees, and have the authority to hire or fire other employees (or have particular weight given to recommendations as to the change of status of other employees); or

(d) perform the duties of a “key employee” or of a “professional.”

A “key employee” is broadly defined as an employee who, by reason of the employer’s investment of time, training, money, or other factors, has gained a high level of notoriety or reputation as the employer’s representative, or has gained a “high level of influence or credibility” with customers, vendors, or other business relationships.  The definition also includes employees “intimately involved in the planning for or direction of the business” and those with “selective or specialized skills, learning, or abilities or customer contacts or customer information” acquired as a result of working for the employer.

A “professional” is an employee whose primary duty involves performing work requiring advanced knowledge “customarily acquired by a prolonged course of specialized intellectual instruction” or requiring talent “in a recognized field of artistic or creative endeavor.”  The term specifically excludes technicians performing work using knowledge acquired through on-the-job or classroom training, such as a mechanic.

Now there’s a big blanket to throw over your employee base. It’s pretty clear this enables onerous contracts on any sales resource, any developer (‘creative endeavor’), any manager, any marketing person, etc. Honestly, if you don’t fit one of the criteria included in the statute, you’re probably not working at a tech startup – at least one with less than 50 employees. And even in a mature business like Turner or Home Depot, these covenants likely apply to greater than 80% of management employees.

And here’s perhaps the most important question: Does the statute apply to you and your peers? If so, then prepare to have your employment agreement amended very quickly if this aberration should pass on November 2. Like it or not, you will face an unfortunate decision: Remain in your current position with stronger handcuffs, or enter the job market and likely end up being presented with a similar agreement. How’s that any kind of choice for an employee? The point is there is no choice, which makes this a crappy deal if you work for someone else.

And then there’s the scenario of being a business owner. If you’re lucky enough to work like a dog, sweat funding rounds and create a killer product that all culminate with an exit, you better make sure you get a huge multiplier. Good old HB173 outlines AT LEAST a five-year non-compete clause – or even longer if part of the exit involves extended purchase-related payments. So kiss your ‘cluster’ theory goodbye – but more on that next time.



0 # Josh Watts 2010-08-23 13:14
It's my understanding that in order for non-competes to be enforceable the employee must be compensated for the period the non-compete agreement is in place i.e. the period of time after the employee leaves a company. Is this correct? Also, is the non-compete enforceable if an employee is a) terminated for cause? b) simply laid-off?
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0 # GFRRTDEFF 2010-08-23 22:59
Josh: I've read the bill and the professional analyses pretty thoroughly, and don't recall seeing anything related to compensation during the non-compete period. I've flirted with a few of these contracts in my career and always pre-negotiated those details for any reasonable exit scenario, i.e., anything short of violation of fiduciary duties or being convicted of a felony.

On the cause issue, the bill's language specifically states it's "with or without cause."

All that being said, I'm sitting down with a couple legal and HR pros this week to delve deeper into the blackness of HB173. I'll continue to report on the topic right up to Election Day on November 2.

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