One Click Case Law for § 13-8-2-1
O.C.G.A. § 13-8-19 <-- --> O.C.G.A. §13-8-2

2010 Georgia Code

TITLE 13 - CONTRACTS

CHAPTER 8 - ILLEGAL AND VOID CONTRACTS GENERALLY
ARTICLE 1 - GENERAL PROVISIONS
§ 13-8-2.1 - (For effective date, see note.) Contracts in partial restraint of trade

O.C.G.A. 13-8-2.1 (2010)
13-8-2.1. (For effective date, see note.) Contracts in partial restraint of trade


(a) Contracts that restrain in a reasonable manner any party thereto from exercising any trade, business, or employment are contracts in partial restraint of trade and shall not be considered against the policy of the law, and such partial restraints, so long as otherwise lawful, shall be enforceable for all purposes. Without limiting the generality of the foregoing, contracts of the type described in subsections (b) through (d) of this Code section are considered to be reasonable.

(b) (1) As used in this subsection, the term:

(A) "Affiliate" means: (i) a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person or entity; (ii) any entity of which a specified person is an officer, director, or partner or holds an equity interest or ownership position that accounts for 25 percent or more of the voting or profits interest of such entity; (iii) any trust or other estate in which the specified person or entity has a beneficial interest of 25 percent or more or as to which such person or entity serves as trustee or in a similar fiduciary capacity; and (iv) the spouse, lineal ancestors, lineal descendants, and siblings of the specified person, as well as their spouses.

(B) "Business" means any line of trade or business involved in a sale.

(C) "Buyer" means any person or entity, including any successor-in-interest to such an entity, that acquires a business or a controlling interest in a business.

(D) "Controlling interest" means any equity interest or ownership participation held by a person or entity with respect to a business: (i) which accounts for 25 percent or more of the voting or profits interest of the business prior to the sale, alone or in combination with the interest or participation held by affiliates of such person or entity; or (ii) the sale of which results in the owner thereof receiving consideration worth at least $500,000.00, inclusive of any consideration received for the sale of business covenant.

(E) "Sale" means any sale or transfer of the good will or substantially all of the assets of a business or any sale or transfer of a controlling interest in a business, whether by sale, exchange, redemption, merger, or otherwise.

(F) "Sale of business covenant" means any agreement described in paragraph (2) of this subsection or any substantially equivalent agreement.

(G) "Seller" means any person or entity, including any successor-in-interest to such an entity, that is: (i) an owner of a controlling interest; (ii) an executive employee, officer, or manager of the business who receives, as a minimum, consideration in connection with either the sale or the sale of business covenant that is worth the equivalent of such person's most recent annual base salary or is in the form of a commitment of continued employment for a period of at least one year; or (iii) an affiliate of a person or entity described in division (i) of this subparagraph; provided, however, that each sale of business covenant shall be binding only on the person or entity entering into such covenant, its successors-in-interest, and, if so specified in the covenant, any entity that directly or indirectly through one or more intermediaries is controlled by or is under common control of such person or entity.

(2) A seller may agree in writing for the benefit of a buyer to refrain from:

(A) Carrying on or engaging in any activity competitive with the business; or

(B) Soliciting or accepting business from the business's customers which were customers at or prior to the time of the sale, including actively sought prospective customers, for purposes of providing products or services competitive with those provided by the business

within the geographic area or areas where the business conducts its operations at the time of the sale, including any area where the business's customers and actively sought prospective customers are present and including any area into which the business is reasonably expected to expand, provided that such activity, business, and area must be described in such writing. A sale of business covenant may, if reasonable to protect the interests of the buyer or the good will of the business, be worldwide. A sale of business covenant may extend for any period of time that is reasonable to protect the interests of the buyer or the good will of the business. Each sale of business covenant shall, however, be considered to terminate at the time the business is discontinued or either the seller, including all successors-in-interest, or the buyer, including all successors-in-interest, ceases to exist.

(c) (1) As used in this subsection, the term:

(A) "Business" means any line of trade or business conducted by an employer.

(B) "Employee" means: (i) an executive employee, officer, manager, or key employee; (ii) research and development personnel or other persons or entities, including independent contractors, in possession of confidential information that is important to the business; (iii) any other person or entity, including an independent contractor, in possession of selective or specialized skills, learning, or abilities or customer contacts or customer information; or (iv) any party to a partnership agreement, franchise, distributorship, or license agreement or sales agent, broker, representative, or supervisor. The term "employee" shall not include, however, any employee who lacks selective or specialized skills, learning, customer contacts, or abilities.

(C) "Employer" means any corporation, partnership, proprietorship, or other organization, including any successor-in-interest to such an entity, that conducts a business or any person or entity that directly or indirectly owns an equity interest or ownership participation in such an entity that accounts for 50 percent or more of the voting or profits interest of such entity.

(D) "Material contact" exists between an employee and each customer or potential customer: (i) with whom the employee dealt; (ii) whose dealings with the employer were coordinated or supervised by the employee; (iii) about whom the employee obtained confidential information in the ordinary course of business as a result of such employee's association with the employer; or (iv) who receives products or services authorized by the employer, the sale or provision of which results or resulted in compensation, commissions, or earnings for the employee within two years prior to the date of the employee's termination.

(E) "Post-employment covenant" includes any agreement described in paragraphs (2) through (4) of this subsection or any substantially equivalent agreement.

(F) "Products or services" means anything of commercial value, including without limitation goods; personal, real, or intangible property; services; financial products or services; business opportunities or assistance; or any other object or aspect of business or the conduct thereof.

(G) "Termination" means the termination of an employee's engagement with an employer, whether with or without cause and upon the initiative of either party, provided that any possible inequity that results from the discharge of an employee without cause or in violation of a contractual or other legal obligation of the employer may be considered as a factor affecting the choice of an appropriate remedy or, if the restraint as a whole is rendered unreasonable, the unenforceability thereof. For purposes of this definition, "the discharge of an employee without cause" does not include (i) a termination of a partnership agreement, franchise, distributorship, or license agreement or a sales agent, broker, representative, or supervisor agreement in accordance with the terms of the agreement or upon the completion or expiration of the agreement, (ii) any termination under retirement programs of the employer, (iii) any termination that follows the employee's refusal to accept an offer of continued employment on terms and conditions at least as favorable to the employee as those previously in effect, or (iv) any termination under circumstances where the employee remains or becomes entitled to receive earnings, commissions, or benefits that serve as compensation, at least in part, for the employee's compliance with the post-termination covenants.

(2) An employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from conducting activity that is competitive with the activities the employee conducted for the employer within the geographic area or areas where the employee conducted such activities at or within a reasonable period of time prior to termination, provided that such activity and area must be described in such writing. The geographic area in which an employee works may include any area where any operations performed, supervised, or assisted in by the employee were conducted and any area where customers or actively sought prospective customers of the business with whom the employee had material contact are present.

(3) An employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from soliciting or accepting, or attempting to solicit or accept, directly or by assisting others, any business from any of such business's customers, including actively sought prospective customers, with whom the employee had material contact during his employment for purposes of providing products or services that are competitive with those provided by the employer's business. No express reference to geographic area or the types of products or services considered to be competitive shall be required in order for the restraint to be enforceable. Any reference to a prohibition against "soliciting or accepting business from customers," or similar language, shall be adequate for such purpose and narrowly construed to apply only to: (A) such of the business's customers, including actively sought prospective customers, with whom the employee had material contact; and (B) products and services that are competitive with those provided by the employer's business.

(4) An employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from recruiting or hiring, or attempting to recruit or hire, directly or by assisting others, any other employee of the employer or its affiliates. No express reference to geographic area shall be required. Any reference to a prohibition against recruiting or hiring, or attempting to recruit or hire, other employees shall be narrowly construed to apply only to other employees who are still actively employed by or doing business with the employer or its affiliates at the time of the attempted recruiting or hiring.

(5) To the extent so stated in the post-employment covenant, a post-employment covenant may provide that any violation of the restraint shall automatically toll and suspend the period of the restraint for the amount of time that the violation continues, provided that the employer seeks enforcement promptly after discovery of the violation.

(6) A duration of two years or less in the case of a restraint of the type described in paragraph (2) of this subsection, and three years or less in the case of a restraint of the type described in paragraphs (3) and (4) of this subsection shall be presumed to be reasonable as the period of time stated for any post-employment covenant.

(d) Any restriction that operates during the term of an employment agreement, agency agreement, independent contractor agreement, partnership agreement, franchise, distributorship agreement, license, shareholders' agreement, or other ongoing business agreement shall not be considered unreasonable because it lacks any specific limitation upon scope of activity, duration, or territory, so long as it promotes or protects the purpose or subject matter of the agreement or deters any potential conflict of interest.

(e) (1) Activities, products, or services that are competitive with the activities, products, or services of an employer may include activities, products, or services that are the same as or similar to the activities, products, or services of the employer. Whenever a description of activities, products and services, or areas is required by this Code section, any description that provides fair notice of the maximum reasonable scope of the restraint shall satisfy such requirement, even if the description is generalized or could possibly be stated more narrowly to exclude extraneous matters.

(2) In the case of a post-employment covenant entered into prior to termination, any good faith estimate of the activities, products and services, or areas that may be applicable at the time of termination shall also satisfy such requirement, even if such estimate is capable of including or ultimately proves to include extraneous activities, products and services, or areas. The post-employment covenant shall be construed ultimately to cover only so much of such estimate as relates to the activities actually conducted, the products and services actually offered, or the areas actually involved within a stated period of time prior to termination. Activities, products, or services shall be considered sufficiently described if a reference to the activities, products, or services is provided and qualified by the phrase "of the type conducted, authorized, offered, or provided within one year prior to termination," or similar language. Further, the phrase "the areas where the (employee) is working at the time of (termination)" shall be considered sufficient as a description of areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination.

(f) (1) Whenever a person or entity desires to verify the terms of any partial restraint in effect at any time, or to obtain a clarification of a restraint believed to be unclear, such person or entity may, at its option, demand such verification or clarification by delivering to the persons or entities that benefit from such restraint a written statement that contains: (A) if verification is sought, a request for a copy of each partial restraint in effect between the parties; or (B) if clarification is sought, a description of the clarification requested; and (C) in all cases, the following statement: "THIS DEMAND IS MADE PURSUANT TO CODE SECTION 13-8-2.1(f)(2) OF THE OFFICIAL CODE OF GEORGIA ANNOTATED AND REQUIRES A RESPONSE WITHIN 30 DAYS."

(2) Within 30 days after such other persons or entities or their authorized representatives have received such demand in person, they shall respond by sending the person or entity bound by the restraint the requested information or, if clarification is considered to be unnecessary because the restraint is believed to be clear, a statement to that effect. In no event shall such a response be required to include confidential information or business strategies as part of any clarification.

(3) In the interest of reducing or eliminating any unclear or overbroad aspect of the restraint, the persons or entities that benefit from any existing restraint may provide the persons or entities bound by such restraint with a clarification or reformulation of the restraint, whether or not the clarification or reformulation was requested, so long as it is no broader than the terms of the original restraint. Any clarification or reformulation on lesser terms so provided by the persons or entities that benefit from the restraint shall supersede any conflicting terms of the restraint and be binding regardless of whether additional consideration is provided. The person or entity bound by the restraint may rely absolutely on such clarification or reformulation in complying with the terms of such restraint.

(4) Any failure or delay of the persons or entities that benefit from such restraint to respond to such a demand shall be considered as one factor by a court in determining how much of an unclear or overbroad restraint may be enforced as lawfully serving the business purposes and interests contemplated by the parties in their agreement. In addition, if the procedure provided for in this subsection is followed for the benefit of anyone who wishes to employ or do business with a person or entity, any subsequent enforcement of any restraint that was unknown, unclear, or overbroad but that is not properly identified, clarified, or reformulated by the persons or entities that benefit from the restraint following their receipt of such a demand shall be limited so as to avoid prejudice to the employment or business to which the unknown, unclear, or overbroad aspects of the restraint relate.

(g) (1) Every court of competent jurisdiction shall enforce through any appropriate remedy every contract in partial restraint of trade that is not against the policy of the law or otherwise unlawful. In the absence of extreme hardship on the part of the person or entity bound by such restraint, injunctive relief shall be presumed to be an appropriate remedy for the enforcement of the contracts described in subsections (b) through (d) of this Code section. If any portion of such restraint is against the policy of the law in any respect but such restraint, considered as a whole, is not so clearly unreasonable and overreaching in its terms as to be unconscionable, the court shall enforce so much of such restraint as it determines by a preponderance of the evidence to be necessary to protect the interests of the parties that benefit from such restraint. Such a restraint shall be subject to partial enforcement, whether or not it contains a severability or similar clause and regardless of whether the unlawful aspects of such restraint are facially severable from those found lawful.

(2) The enforceability of any partial restraint of trade shall be determined and shall be enforced independently of the enforceability of any other covenant or part thereof contained in the same contract or arrangement.

(3) Contractual terms that provide for a loss or forfeiture of rights or benefits conditioned upon any specified act or event shall not be considered a restraint of trade. The fact that any such loss or forfeiture provision is contained in the same agreement or contract with an otherwise valid partial restraint of trade shall not impair the validity or enforceability of either such loss or forfeiture provision or such restraint, and the enforcement of either term shall not serve as grounds for delaying or withholding enforcement of the other term, including enforcement by injunctive relief. If a loss or forfeiture provision is contained in an agreement or contract that also contains other terms that are determined to be, in some respects, an unreasonable and unenforceable restraint of trade, such loss or forfeiture provision shall nonetheless be enforceable to the extent it may lawfully serve the purposes and interests of the parties that benefit from such provision. Such a loss or forfeiture provision shall be subject to enforcement, whether or not it contains a severability or similar clause, and regardless of whether the unlawful aspects of such restraint are facially severable from those found to be unlawful.