The differences between a non-compete, a non-solicit, and a non-disclosure agreement—with examples!

The differences between a non-compete, a non-solicit, and a non-disclosure agreement—with examples!

Client Resources | October 2, 2018

In your business, you have probably heard of most or all of these agreements.  You may even use them all.  And, often, these agreements will all be part of one document or contract.  Thus, these agreements can often get lumped together.  For example, people use “non-compete” to include a “non-solicit.”  Nonetheless, understanding the differences in these agreements can make enforcing them and accomplishing your business objectives easier.

Overview of the Types of Restrictive Covenants in Georgia  

One thing that a non-compete, a non-solicit, and non-disclosure agreement have in common is that Georgia’s 2011 Restrictive Covenants Act (“Act”) applies to them all.  Under the Act, an agreement to restrict competition (“non-compete”), an agreement to refrain from soliciting customers[1] (“non-solicit”), and an agreement to protect confidential information (“non-disclosure” or “confidentiality” agreement) are all types of restrictive covenants.[2]

Because these three types of agreements are all restrictive covenants, courts do not automatically enforce them just because the parties agree to a contract.  Moreover, although people often use all three of these agreements at once, they have significant differences, both legally and practically.

For example, legally, a non-compete is generally harder to enforce than a non-solicit, which is harder to enforce than a non-disclosure agreement.  Practically, for example, an employer may only need the protection of a non-solicit if its customers are either contractual or very identifiable.  A non-compete may only be more helpful than a non-solicit if the employer has given an employee access to very sensitive information about the entire business or specialized training.  Or an employer may just need a non-disclosure agreement if it is only concerned about its trade secrets.

Non-Competes

A non-compete is perhaps most useful to protect the time and money spent developing an employee’s skills.  According to the Act, a non-compete is an agreement that “restrict[s] competition during the term of a restrictive covenant.”[3]  Non-competes are the hardest to enforce because an enforceable non-compete must meet more requirements than a non-solicit or a non-disclosure.

In particular, non-competes require a statutory showing that the defendant is a specific type of employee, a showing of a reasonable time, geography, and scope, and a showing of a legitimate business interest.  In effect, a plaintiff must show that because the defendant worked for it, taking that knowledge and experience to a competitor is unfair competition.

While the hardest to enforce, non-competes also are perhaps the most likely to be modified if the non-compete tries to ban too much competition.  Under the Act, if a non-compete fails any of the requirements, “then the court may modify the restraint provision.”[4]  A court does not have to modify and may just not enforce the non-compete.   Ultimately, expecting a court to fix a non-compete is a poor way to draft one.

Non-Solicit

A non-solicit is perhaps most useful to protect an employer’s investment of time and money in developing customer relationships.  According to the Act, a non-solicit is, generally, an agreement not to solicit an employer’s customers or prospective customers within whom the employee worked.[5]

A non-solicit is easier to enforce as written than a non-compete.  But non-solicits present difficult proof issues—because a plaintiff must show the employee has solicited someone to whom the non-solicitation applies.  Under Georgia law, merely responding to an interested customer is generally not solicitation.[6]  This showing often involves information outside of the possession of a plaintiff—often emails or texts to its customers.  Practically, a plaintiff’s customers who can be successfully solicited may not tell the plaintiff about the solicitation, and a plaintiff may only become aware of solicitations that were not successful.

Non-Disclosure

A non-disclosure agreement is an agreement to keep information confidential that can last as long as that information remains confidential.[7]  The definition of “confidential information” has many similarities with the definition of a “trade secret.”[8]  Georgia law gives examples of possible types of confidential information: “trade secrets, methods of operation, names of customers, price lists, financial information and projections, route books, personnel data, and similar information.”[9]

Non-disclosure agreements should be routine for nearly all businesses.  Unlike non-competes or, to a lesser extent, non-solicits, non-disclosure agreements are rarely unenforceable based on the language of the agreement—even though they are often vague enough to cover non-confidential information.  Non-disclosure agreements become difficult to enforce because it can be hard to prove someone received confidential information and that the information remained confidential.

Perhaps the main reason to use a non-disclosure agreement is to protect trade secrets and create potential contractual liability for an employee (or former partner) who takes information.  To claim trade secrets, the plaintiff must show that it has made reasonable efforts to keep the information confidential.[10]  Having employees sign a non-disclosure agreement—especially a non-disclosure agreement applying to specific information—is a good way, maybe the best, to show reasonable precautions.[11]

What an enforceable Non-Compete, Non-Solicit, and Non-Disclosure agreement looks like under Georgia law

  1. Non-Compete

“For a period of twenty-four (24) months after separation from employment with Novelis for any reason, [Smith] will not, directly or indirectly, perform similar duties of the type conducted, authorized, offered or provided by [Smith] for Novelis within twelve (12) months prior to [his] separation from employment with Novelis, whether performing those duties as an employee, consultant, independent contractor, agent or representative, for any Prohibited Business[.]”

“Prohibited Businesses are defined in the Non-Compete Agreement as: any individual, partnership, corporation, limited liability company, joint venture, association, or other group, however organized, that competes with Novelis in the Subject Business. Prohibited Businesses include but are not limited to the following entities and each of their affiliates: Alcoa, Inc. (including but not limited to Alcoa Bohai Aluminum Industries Company Limited)[.]”

“Subject Business is defined as “Novelis’s production, marketing and sale of rolled aluminum products and the recycling of aluminum, and related research and development[.]”

Novelis Corp. v. Smith, No. 1:16-CV-1557-ODE, 2017 WL 1745635, at *3-4 (N.D. Ga. Mar. 10, 2017) (quotations omitted).

  1. Non-Solicit

“During the time that [Al Khafaji] is employed by Interra and … for the specified period of time of two (2) years following the termination of such employment for any reason whatsoever (whether voluntary or involuntary) [Al Khafaji] will not:

(a) solicit or attempt to solicit sales or purchase orders for Core Products:

(i) from any Customer or Vendor with respect to whom [Al Khafaji] bought or sold Core Products on behalf of Interra at any time during the two (2) years immediately preceding [Al Khafaji’s] termination, or

(ii) from any Customer or Vendor account that [Al Khafaji] serviced or supervised other’s servicing at any time during the twelve (12) month period immediately preceding the termination of [Al Khafaji’s] employment with Interra, or

(iii) from any prospective Customer or Vendor during the two (2) year period immediately preceding [Al Khafaji’s] termination.

(b) induce or influence or attempt to induce or influence any Customer or Vendor to divert sales or purchase orders for or related to Core Products away from Interra[.]”

Interra Int’l, LLC v. Al Khafaji, No. 1:16-CV-1523-MHC, 2017 WL 4866266, at *1-2 (N.D. Ga. Mar. 21, 2017).

  1. Non-disclosure

“During [Smith’s] employment and for a period of twenty-four (24) months after [Smith’s] separation from employment with Novelis for any reason, or, if applicable, for as long as [Smith] and/or Novelis otherwise may be obligated to maintain confidentiality, [Smith] will not disclose or make use of, directly or indirectly, for himself[ ] or others, any Confidential Information [Smith] obtains during the course of [his] employment with Novelis, with the exception of using the information in connection with [Smith’s] efforts for Novelis[.]”

Novelis Corp. v. Smith, No. 1:16-CV-1557-ODE, 2017 WL 1745635, at *3 (N.D. Ga. Mar. 10, 2017).

[1] To what extent Georgia law limits agreements not to solicit employees or vendors is a topic for another day.

[2] See O.C.G.A §§ 13-8-51, 13-8-53.

[3] O.C.G.A. § 13-8-53(a).

[4] O.C.G.A. § 13-8-54(b).

[5] Specifically, a non-solicit is an agreement “to refrain, for a stated period of time following termination, from soliciting, or attempting to solicit, directly or by assisting others, any business from any of such employer’s customers, including actively seeking prospective customers, with whom the employee had material contact during his or her employment for purposes of providing products or services that are competitive with those provided by the employer’s business.” O.C.G.A. § 13-8-53(b).

[6] See, e.g., Habif, Arogeti & Wynne, P.C. v. Baggett, 231 Ga. App. 289, 295-96 (1998).

[7] O.C.G.A. § 13-8-53(e).

[8] Compare O.C.G.A. § 10-1-761(4) with O.C.G.A. § 13-8-51(3).

[9] O.C.G.A. § 13-8-51(3)(E).  For information to be confidential in Georgia, it must

“(A) Relat[e] to the business of the employer[;]

(B) [Be] [d]isclosed to the employee or of which the employee became aware of as a consequence of the employee’s relationship with the employer;

(C) Hav[e] value to the employer; [and]

(D) [Be] [n]ot generally known to competitors of the employer[.]”

[10] O.C.G.A. § 10-1-761(4)(B).

[11] See, e.g., Diamond Power Int’l, Inc. v. Davidson, 540 F. Supp. 2d 1322, 1333-34 (N.D. Ga. 2007).

 

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