Is Your Non-Compete Enforceable Against That Employee?

Is Your Non-Compete Enforceable Against That Employee?

Client Resources | May 29, 2018

You cannot enforce a non-compete agreement against every employee.  That may not be a surprise to you, and you may not care about enforcing non-competes against entry-level employees.

But Georgia law can be more limited than employers may realize. Even employees that supervise other employees or have some customer-facing responsibilities may not be eligible for a non-compete under Georgia’s 2011 Restrictive Covenants Act (“Act”).  Let’s take a look.

The Act Limits The Types Of Employees That Can Sign An Enforceable Non-Compete

The Act defines which employees can sign an enforceable non-compete. The good news for employers is that the definitions seem to cover the employees that could most hurt your business by leaving.  The bad news—especially for small businesses in which employees fill many different roles—is that judges may not extend the definitions to cover important employees who do a bit of everything—some management, some customer-facing work.

Businesses can only enforce non-competes against employees who “[a](1) Customarily and regularly solicit for the employer customers or prospective customers;” “[a](2) Customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others;” (a)(3) are managers; or (a)(4) are key employees or professionals.[1]

To be a manager under the Act, an employee must meet three more requirements:

  1. “Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;”
  2. “Customarily and regularly direct the work of two or more other employees; and”
  3. “Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees.”[2]

A key employee, generally, is one who

  1. has a “high level of influence or credibility with the employer’s customers, vendors, or other business relationships”
  2. “is intimately involved in the planning for or direction of the business” or
  3. possesses specialized skills because of working for the employer.[3]

Finally, a “professional” is an employee whose “primary duty [is] the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or requiring invention.”[4] The easiest way to think of a professional under the Act is of someone who needs a graduate degree to do what he or she is doing.

A Federal Case Shows That The Definitions Are Not Broad Enough To Cover Every Employee Who Can Hurt The Employer By Leaving And Competing

These definitions seem like they would cover all the important employees.  But, so far, only one case—a Georgia federal case—has deeply analyzed what some of these definitions mean.

In CSM Bakery Solutions v. Debus, 2017 WL 2903354 (N.D. Ga. Jan. 25, 2017), the defendant employee (“Debus”) was a technical services sales representative and then a sales representative for the baker manufacturer plaintiff (“CSM”).  She had signed a non-compete and left to go work for a competitor.  The plaintiff was worried enough to file a lawsuit against her to enforce the non-compete.  CSM argued that it could enforce the non-compete against Debus under Section 13-8-53(a)(1) (regularly solicit customers), (a)(2) (regularly engage in obtaining orders), (a)(3) (managerial duties), and (a)(4) (key employee). But the judge did not let the employer enforce the non-compete, ruling that she was not the type of employee covered by the Act.

So what did Debus do for CSM?  Initially, CSM hired her because of her ability to make and decorate cakes and nearly exclusively had Debus working with CSM’s customer, Jewel, a grocer.  Working with Jewel as a technical services sales representative, Debus trained and assisted cake decorators on the decoration and display of cakes in Jewel stores.  Debus also promoted new ideas for Jewel to use in designing and displaying cakes to Jewel’s customers.  After a while, CSM promoted Debus to sales representative.

Here are the arguments that CSM made and that the court did not find persuasive:

The (a)(1) and (a)(2) sales arguments

CSM Argues[5] Court Says[6]
Job title was technical services sales representative (“TSSR”) and then sales representative. “Even though Debus’s title mentions involvement in sales, it is not conclusive that the title reflected her actual duties.”  “Debus’s role did not essentially change when she was promoted from her position as a TSSR to a sales representative.” “Debus’s new position did not include soliciting customers, and she still performed the day-to-day duties as she was a TSSR.”
Debus’s 2015 self-evaluation describes her work as a TSSR as “aimed to bring more products into the territory that will be successful to [the] customer and will benefit CSM as well.” “The evidence shows that Debus’s interpretation of her job in the self-evaluation was not that she was involved in sales, but that she, along with everyone else at the company, worked to be quality employees for CSM.”
The résumé that Debus submitted to new employer refers to her experience in sales. “On Debus’s résumé, one of her ‘Key Skills’ is ‘Bakery Product Sales.’ There is no other description of specific activities related to sales and solicitation. Furthermore, the ‘Key Skills’ section includes many generic and generalized skills without any substance elaborating on them. It is difficult to glean what Debus did at CSM just from a skill entitled ‘Bakery Product Sales.’ Lastly, Debus personally drafted the résumé with the hope of getting hired, and therefore presumably erred, if at all, on the side of overstating her skills and experience.”
Emails demonstrate Debus’s sales role. “CSM could adduce only six emails (over her five years of employment) to which Debus is a party. Further, only one of the emails was directed towards anyone associated with the Jewel account. The Court presumes that an employee regularly involved in sales and solicitation would be in frequent contact with customers, especially over a three-year period. Martinez, one of Debus’s supervisors and a frequent recipient of these emails, was not even aware of Debus making any sales for CSM.”
Debus spent time “with Jewel employees and bakery managers in training them how to decorate baked goods, how to present the goods in stores, and how to work with new products.”  “Debus attended seasonal sales meetings in order to present new products for Jewel to carry in the upcoming season.” “Defendants demonstrate through Martinez’s testimony that Debus’s role at the seasonal sales meetings was to help choose items to be presented and then prepare the items to be shown at the meeting.  This was also true for Debus’s meetings with the bakery managers.”  “Debus attests that any actual sales or orders occurred during follow-up and went though Tina Olson, CSM’s key account manager for the Jewel account.”
“[S]ales entail more than just placing or taking an order, but instead include the process of convincing a customer to purchase new or larger quantities of products.” “[I]f the Court interpreted O.C.G.A. § 13-8-53(a) in accordance with CSM’s reading, the statute would become meaningless because it would apply to every employee who positively impacts a company’s sales efforts.”

 

The (a)(3) management arguments

CSM Argues[7] Court Says[8]
Debus was responsible for managing two employees and had the authority to hire or fire. “Even at her highest position with CSM,” she had two supervisors, meaning “her conduct was still mainly managed.”  “[S]he did not ‘customarily and regularly’ manage those employees.”
“Debus described her role with CSM as managing a territory (i.e., ‘a recognized subdivision of the enterprise’) for the company.” “Debus’s primary duty with CSM did not consist of managing the Jewel account.”  “Debus’s role was assisting Jewel employees with presentation and preparation of products. The Court does not think these were the types of activities the Georgia legislature had in mind[.]”

 

The (a)(4) key employee arguments

CSM Argues[9] Court Says[10]
“CSM argues that Debus has ‘gained a high . . . level of influence or credibility with the employer’s customers[.]’” “Debus’s performance evaluation shows that her work allowed her to develop strong relationships with Jewel employees.” “While Jewel employees respected Debus, her role and status within the company do not indicate that she was a key employee. As an international business with thousands of employees worldwide, Debus cannot be considered a key employee when she was one of CSM’s lower-ranking employees. Even within the individual Jewel account, Debus reported to two supervisors.”

 

Conclusion

An employer who tries to enforce a non-compete against any employee who does not spend most or all of his or her time making sales or managing people may be making an expensive mistake.

Cameron W. Ellis is a lawyer at Krevolin & Horst, LLC, a business law and litigation boutique based in Atlanta, Georgia.  Mr. Ellis focuses his practice on trade secrets, non-competition litigation, and disputes between business owners. The firm and Mr. Ellis have extensive experience litigating and arbitrating complex non-compete, trade secret, and business tort matters. Mr. Ellis can be reached at 404-888-9700. 

[1] O.C.G.A. § 13-8-53(a).
[2] O.C.G.A. § 13-8-53(a)(3).
[3] O.C.G.A. § 13-8-51(8).
[4] O.C.G.A. § 13-8-51(14).
[5] 2017 WL 2903354, at *3-5.
[6] 2017 WL 2903354, at *4-5 (citations omitted).
[7] 2017 WL 2903354, at *5-6.
[8] 2017 WL 2903354, at *5-6.
[9] 2017 WL 2903354, at *6.
[10] 2017 WL 2903354, at *6.

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