Welcome to the Noncompete News Halloween Edition. This month's devilish provision is what I like to refer to as the "hybrid noncompete – nonsolicit", i.e., a restrictive covenant that at first glance looks like a prohibition against soliciting customers but, in reality, acts like a noncompete. The provision at issue is of particular interest to staffing companies or other employers that place their employees at a client site.
In Avion Systems, Inc. v. Thompson, the cCompany placed Thompson, one of its employees, at a client site to perform consulting services. As part of her employment, Thompson agreed to the following restrictions:
For a period of twelve (12) months following the completion of project [at the client site], the Employee unconditionally agrees to not deal, directly or indirectly, or by any other means . . . for any pecuniary gain with Corporation's customer or their client to whom he is assigned at the particular jobsite for that particular division or subdivision with whom Employee had contact.
Thompson began working for Avion and was placed on a project with one of Avion's customers. Sometime later, Thompson notified Avion that she was terminating her employment with Avion and would be completing her assignment through another contractor. Avion brought suit alleging, among other things, that Thompson breached the restrictive covenant. The lower court found the provision unenforceable and Avion appealed.
The Court of Appeals addressed the provision as a noncompete. Applying the three-element test of duration, territorial coverage, and scope of activity, the Court focused on how the provision addressed whichat activities Thompson was prohibited from performing for the customer. The Court recognized that a "covenant not to compete that does not specify with particularity the nature of the business activities in which the employee is forbidden to engage is generally considered unreasonable."
Focusing exclusively on the "scope of activity" prong, the court held: "by failing to specify the type of activities prohibited, such covenants in effect restrict employment in any capacity, even if completely unrelated to the employer's business, and are thus impermissibly overbroad . . .". The Court specifically took issue with the prohibition against "deal[ing]" with the client "for any pecuniary gain," regardless whether the activities were related to Avion's business.
The Court also could have attackhed the identified territory. The territory, i.e., "the particular jobsite," is too indefinite under Georgia law because it does not allow the employee to know exactly where he cannot compete as of the time he entered into the Agreement.
Bottom Line: An employer seeking to prevent one o f its employees staffed at a particular client site from working for the client directly or through another company may consider noncompete language like the following:
Unless on behalf of the Company, during employee's employment, and for a 12-month period following the termination of his employment, whether the termination is effected by the Company or the Employee, the Employee agrees not to provide the same or similar services he provided on behalf of the Company to XXX Client, within a 5-mile radius of XXX client's worksite located at 1234 Peachtree Street, N.E., Atlanta, Georgia 30309.
If you have any questions regarding the issues discussed in this newsletter, please contact the author, Jeff Mokotoff, a partner in our Atlanta office, at 404-888-3804 or jmokotoff@fordharrison.com.