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Restrictive covenants: When do they go too far?

Restrictive covenants - including noncompete and nonsolicitation agreements - play an important role in protecting your business. They help you guard the competitive edge you have worked so hard to build. They shield your business from unscrupulous employees and vendors. And they prevent employees and partners from gutting your business when they leave.

However, restrictive covenants can become legal minefields. Poorly drafted agreements are likely to be challenged. They may turn out to be unenforceable, leaving your business with gaping vulnerabilities.

So how can you make strategic use of these agreements without running into costly legal battles down the road?

Don't make them too broad

It's tempting to throw everything but the kitchen sink into your business contracts. When it comes to restrictive covenants, however, this approach can backfire. Agreements that are overly broad run the risk of being unenforceable.

Under Georgia law, restrictive covenants must be reasonable in scope with regard to:

  • The employees or parties they cover
  • The activities and services restricted
  • The geographic area they apply to

Of course, you can't make noncompete agreements so broad as to prohibit all employees from working anywhere (nor would you want to). On the other hand, if the restrictions are too narrow, they won't offer much protection for your business. Finding the right balance requires a thoughtful approach rooted in a solid understanding of the law.

Know which employees they can cover

Noncompete agreements essentially restrict future employment opportunities. As a result, they're only enforceable with regard to certain types of employees, including:

  • Salespeople
  • Professionals
  • Managers
  • Key employees
  • Employees who solicit customers

While some of these categories are straightforward, others have gray areas. An attorney can help you navigate the often tricky definitions for who can be covered.

Update old agreements

Georgia's law on restrictive covenants underwent a major shift in 2011. As a result, old agreements (dated before May 2011) may no longer be enforceable. It's well worth it to conduct a thorough inventory of your agreements and update them - and to do so in consultation with an attorney.

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