Atlanta Business Attorney Blog

In Atlanta, Georgia, non-compete agreements are generally analyzed the same, but differing levels of scrutiny can apply. The level of scrutiny is determined based on the circumstances surrounding the entry of the non-compete and the roles of the parties. There are two main types of non-competes in Georgia: those an employee enters into with his employer, and those a business seller enters into with a business buyer.

When an employee enters into a non-compete related to the term of his employment, such non-compete will be assessed using strict scrutiny. Beacon Security Technology, Inc. et. al v. Beasley, 286 Georgia Appeals at 12 (2007). This means that courts will not rewrite or strike portions of unreasonable non-competes related to employment, regardless of whether such contracts contain severability clauses. Ceramic v. Hizer, 242 Georgia Appeals 391, 394 (2000). Instead, the entire covenant will be stricken. This rejected principle is referred to as the “blue pencil theory of severability.” Id. These non-competes deal with employers who want to prevent employees from competing directly with them for a certain period of time after the termination of employment.

Non-competes that are “ancillary to a sale of business” may be blue penciled, and are analyzed using a lesser degree of scrutiny. Habif, Arogeti & Wynne, P.C. v. Baggett, 231 Georgia Appeals 289-290 (1998). This means that courts have much more freedom to uphold and actually edit these non-competes if they were incorrectly drafted in the first place. These types of non-competes usually deal with a business purchaser who wants to prevent the business seller from directly competing with the business he’s acquiring for a certain period of time.

Georgia Business Litigation: Definitions of Common Terms associated with Business Law and Litigation:

Affirmative Defenses: The defendants defenses to the allegations in the complaint included in the defendant’s Answer filed with the court.

Answer: A document used to respond to the complaint or petition. Answers usually admit or deny specific allegations or claims in the document being answered. Also called a response.

Appeal: A procedure to ask a higher court to review the ruling of a lower court.

Cause of Action: Failure to perform a legal obligation to do, or refrain from doing, some act that gives rise to liability for which a plaintiff seeks a legal remedy. Also called a claim.

Complaint: The document filed by the plaintiff that initiates a lawsuit. The complaint provides information regarding what harm the plaintiff is alleging and what relief the plaintiff is seeking.

Counterclaim: The claim asserted by the defendant against the plaintiff after the plaintiff files the initial lawsuit, or complaint, against the defendant. The counterclaim is asserted in the same lawsuit and is often filed with the defendant’s answer to the complaint.

Cross-Claim: In a lawsuit where there are multiple defendants, a claim or cause of action filed by one defendant against another defendant.

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Do you want to file a lawsuit in Georgia for breach of contract? Are you being sued in Georgia for breach of contract? If so, one of the most important considerations you may have is how a Georgia court would assess damages either for or against you.

The sensationalized litigation stories in the news would lead one to believe that there are hundreds of thousands, if not millions, of dollars at stake in any given law suit. Generally, these large awards are the result of an award of “punitive damages.” Punitive damages are essentially awarded to punish the wrongdoer. Today, punitive damages are often capped. Nonetheless, punitive damages are not available in a law suit for breach of contract.

In awarding damages for a breach of contract claim, Georgia courts attempt to place the non-breaching part in the same position it would have been in if the contract had not been breached. The measure of breach of contract damages is the amount that would compensate the injured party for the loss which fulfillment of the contract would have prevented or the loss that the breach caused.

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From time to time, we receive calls from Atlanta-based sales representatives with a variation of the following problem: Potential Client is employed by Company A, which manufactures a certain product. Potential Client’s job is to contact retailers to secure orders of Company A’s product, and Potential Client gets paid on commission based on the amount of Company A’s product that he sells. Potential Client secured such orders, and then was fired by Company A. Company A is refusing to pay the agreed upon commission for Potential Client’s sales work. What is Potential Client to do?

In this situation, the sales representative statutes in the Official Code of Georgia may be helpful. These statutes, located at O.C.G.A. 10-1-700, et seq., define the circumstances in which a former sales representative can file a lawsuit against a former employer for the amounts they are owed, plus double the amount that has been wrongfully withheld. In order to qualify to use the statute, a potential client must fall within the definition of a sales representative while his former employer must fall within the definition of a principal.

According to O.C.G.A. 10-1-700, a principal is a person or entity who (1) makes or distributes a product, (2) employs a sales representative to make sales of the product, and (3) pays the sales representative for his work at least partially on a commission basis. Though the title of this section refers to “out-of-state principals,” no such requirement is included in the definition of principal, and there does not appear to be any case law on this matter. A sales representative is a person who tries to obtain wholesale orders of the principal’s product based on his agreement with the principal to be paid at least partially on a commission basis. All of the elements of these definitions must be met. (Please visit http://www.lexis-nexis.com/hottopics/gacode/default.asp to read the full text of the definitions).

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The Georgia Court of Appeals recently released the decision of Kitchen v. Insuramerica Corp., case number A08A1986, in which it found that a former employee had an enforceable contract with the Georgia corporation that had employed him for the transfer of a 25% interest in stock in the corporation’s subsidiaries. This case illustrates the importance of both parties agreeing on all of the material terms of a contract, which is known as a “meeting of the minds.” In the Kitchen case, the Georgia Court of Appeals states that the enforceability of a contract is tested by “whether it is expressed in language sufficiently plain and explicit to convey what the parties agreed upon.” It is also important to keep in mind that courts decide contract cases based on the specific facts of each case.

In the Kitchen case, the parties had agreed that the employee would receive a 25% interest in the corporation’s subsidiaries as part of the compensation for his employment with the company. The material terms of the agreement were laid out in a letter that was signed by both parties, which further showed their agreement. The Georgia Court of Appeals in Kitchens found that the letter clearly described the material terms of the stock transfer by providing: (1) the employee would work for the corporation and its subsidiaries in a certain position; (2) that by a certain date, the employee would receive 25% of the corporation’s subsidiaries’ outstanding stock; and (3) a formula for calculating the employee’s “ownership equity.” Additionally, the Georgia Court of Appeals found that the rest of the letter provides enough additional detail on the agreement for it to be enforceable even though there may be some uncertainty as to other aspects of the agreement.

In the Kitchens case, it appears that the letter signed by both parties governed the relationship between the Georgia corporation and the employee. In the absence of this letter, there likely would have been a different result. This case illustrates that it is good practice for contracting parties to sign a contract which includes the basic terms of the agreement. This contract needs to include all of the important terms. The more detail the parties agree on and include in the contract, the less likely a dispute will arise later on.