SHRM-Atlanta

Unfortunately, many employers ignore or are simply unaware of their rights to protect the company’s assets beyond those established by contractual restrictive covenants.  In regards to employees who engage in unfair competition, Georgia laws, most other state laws and some federal laws offer a variety of statutory and common law protections beyond those provided by restrictive covenants.  These laws can be extremely valuable tools when either a restrictive covenant agreement is unavailable or the restrictive covenants at issue are potentially unenforceable.  While some Georgia experts would argue that these non-contractual protections are less important now that Georgia has significantly loosened the reins when it comes to the enforcement of contractual covenants (O.C.G.A 13-8-50 et seq), these non-contractual protections can also be extremely important as supplemental tools to the enforcement of contractual covenants.

Among these non-contractual protections are claims that the former employee breached his/her duty of loyalty and/or fiduciary duties owed to his/her former employer.  Most employees who are employed in positions where they are capable of damaging their employers through unfair competition owe a fiduciary duty and/or duty of loyalty to their employer, regardless of the existence of contractual covenants.  Essentially, these duties require employees to use their best skill and judgment to promote their employer’s interests during the term of their employment.  In other words, even absent a contractual commitment, an employee may not take certain actions contrary to his/her employer’s business interests while that employee is on the employer’s payroll.

Under Georgia law, a claim for breach of fiduciary duty requires the proof of three elements:  (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damages proximately caused by the breach.  Certainly, officers, directors and other higher level employees are bound by these fiduciary duties.  The fiduciary relationship can also be applied to other employees if a sufficient relationship of trust can be proven.  Furthermore, even absent a fiduciary duty, a duty of loyalty may similarly apply to lower level employees.

More specifically, the applicable Georgia law holds that an employee may, without breaching these duties, make plans to join a competing business while actively employed.  However, he/she may not engage in acts which are in direct competition with his/her employer’s business interests before the employment relationship ends.   Such unlawful acts would include solicitations of the employer’s clients and theft of the employer’s confidential information.  Even the solicitation of other current employees to leave the employer for a competitor may constitute a breach of one or more of these legal duties.

As discussed above, other non-contractual legal tools are available to employers.   These include:

1. The Uniform Trade Secrets Act (prohibiting the taking and use of information which satisfies the definition of “trade secret”);
2. The Federal Computer Fraud and Abuse Act (prohibiting the unauthorized access of, copying from or tampering with the employer’s computer system and/or data base);
3. The Georgia Computer Theft and Trespass Statute (companion statute to the federal Computer Fraud and Abuse Act described above); and
4. State tort claims related to the unlawful conversion of another’s property, theft of property by taking and the like.

So, here is the “bottom line.”  Employers should be aware of these non-contractual protections and use them if the situation warrants.  Employers should not abandon the protection of the Company’s assets just because restrictive covenants are nonexistent or unenforceable.  Immediately lock down the former employee’s computer and data records.  Conduct a detailed search for electronic documents showing or even tending to show that the employee solicited clients, solicited your other employees, sent confidential information or trade secrets to his/her personal e-mail and/or the like.  Interview other employees who were close to the former employee.  Gather as much evidence as possible to support non-contractual claims, supplement contractual claims or both.  Even if litigation is not in the employer’s best interest, evidence of wrongful competition while the employee was actively employed can act as invaluable leverage to secure a favorable out-of-court resolution.

Be sure to Jon’s session, The Emerging Pitfalls of the ADAA with a Focus on Expanded Leave Requirements, at the 22nd Annual SHRM-Atlanta HR Conference at the Cobb Galleria Centre in Atlanta, March 13-14th, 2012.

Jon M. Gumbel, Ogletree Deakins, has concentrated his practice in the field of management labor and employment law since 1987.  He advises clients on a daily basis regarding complex human resources, labor and employment law issues. Jon also regularly drafts and revises policies, procedures and contracts, including complex executive employment and restrictive covenant agreements for a wide variety of clients and applicable to jurisdictions throughout the country.