Articles Posted in Non Compete Agreements

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contract fists.JPGGood Georgia Lawyer recently just explained when a contract needs to be in writing to be enforceable.

Today’s article discusses when contractual agreements are enforceable without writing, for example, an oral agreement between two parties. When should this matter? Well, for one thing, in the event of a contract dispute, not having a contract in writing would certainly matter. Contractual disputes sometimes hinge on the meaning of a contract. One party says that they were promised by the other party to do something and the other party claims otherwise. This is why, as a general rule, it is always better to make sure you have a contract in writing.

But what if you don’t? One of the defenses to a breach of contract lawsuit lies in the statute of frauds defense as explained in the earlier article, some contracts need to be in writing to be enforceable.

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The Official Code of Georgia § 13-4-101 explains the elements and requirements of what is known as “accord and satisfaction.” Accord and satisfaction happens when two parties to a contract, by a subsequent contract, have satisfied the first previous contract, and the subsequent contract has been executed.

What does this mean in simple, plain English?

Well, there are two parts to this law. In a nutshell, the execution of this new, second agreement may amount to a satisfaction of the first, older former contract for two reasons:

1. First, where it is so expressly agreed by the parties (both people state so); or
2. Second, if there was no such agreement to satisfy the first contract, if the new promise is founded on a new consideration (a promise to do something like pay money), the taking of it is a satisfaction of the former agreement.

Here is a good and easy example to understand what it means:

What if I had a contractual agreement with my Uncle Bob that I would hire him to build me a backyard shed for $30,000? Uncle Bob and I agree that I will pay him $10,000 to start the project and $5000 at the end of each week until he is finished.

Unfortunately, during the course of the shed building, Uncle Bob starts drinking again and can barely pick up a hammer to nail a board in straight. The shed turns out completely lopsided and crooked. I tell Uncle Bob that there is no way I am paying him $30,000 for this shed that looks like the leaning tower of Pisa. So, Uncle Bob and I make a new agreement, subsequent from our first contract where I pay him $20,000 rather than the $30,000 I originally promised him.

What is the consideration in this new subsequent agreement? The consideration is that for a $10,000 savings, I gave up what I was entitled to: a well-constructed shed. Uncle Bob gives up his right to full price to avoid being sued for a shoddy performance. Once accord and settlement has occurred, Uncle Bob and I have given up the right to sue for more money under this settlement agreement.

Months later when Uncle Bob is back on the wagon, can he sue me for the $10,000 I was supposed to pay him from the first contract? Can I sue him because I am still mad about the ugly crooked eyesore in my backyard? No! Accord and satisfaction has occurred.

As the Georgia courts have ruled: “Accord and satisfaction is an agreement between two parties to give and accept something in satisfaction of the right of legal action which one has against the other, which when performed is a bar (a blockade) to all actions on this account. Woodstock Rd. Inv. Properties v. Lacy, 149 Ga. App. 593, 254 S.E.2d 910 (1979); M.W. Buttrill, Inc. v. Air Conditioning Contractors, 158 Ga. App. 122, 279 S.E.2d 296 (1981).

Have more questions? Read more here and consider contacting us today to schedule an appointment.
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Generally, there is no cooling off period in Georgia except for very rare exceptions, however that doesn’t mean you necessarily are trapped in a contract. There are other conditions and reasons (for example fraudulent misrepresentation, illegality, incapacity, unfair business practices, and more) that may permit you to rescind (get out of) a contract. However, time is of the essence so it is essential to seek a good Georgia lawyer who can help interpret your contract and advise you of your legal rights concerning the facts of your case.

In general, the “three day cooling of period” applies under federal law for only very specific contracts.

Three Day Rule Generally Applies Only Under The Following Conditions:

1. A seller went “door to door” and sold, leased or rented you a consumer good or service with a purchase price of $25 or more and;

2. They (not you) solicited the sale (even if it was following an invitation by you the buyer), and;

3. The offer to purchase was made anywhere other than the place of business of the seller, i.e. NOT the seller’s store but at a place like your house, a convention center, a dorm, a workplace, etc…

There Is No Three Day Cooling Period If The Sale Was:

(1) Made pursuant to prior negotiations you the buyer had while visiting a retail business location which had a permanent fixed location (like a store) where the goods were exhibited (like a furniture shop) or the services were offered for sale on a continuing basis (like a computer repair shop); or

(2) The consumer is afforded the right of rescission by the provisions of the Consumer Credit Protection Act; or

(3) The buyer initiated the contact and the goods or services were required for an immediate personal emergency of the buyer, and the buyer gave the seller a separate dated and signed personal statement in the buyer’s handwriting explaining the situation, acknowledging and waiving the right to cancel the contract within three days; or
(4) The sale was conducted and sold entirely by phone or mail; and without any other contact prior to delivery of the goods or performance of the services; or
(5)The sale was where the buyer initiated the contact and requested the seller to visit the buyer’s home for the purpose performing maintenance or repairing personal property. (However, if in the course of such a visit, the seller sells the buyer the right to obtain additional services or goods other than replacement parts necessarily used in performing the maintenance or in making repairs, the sale of those additional services and goods do not fall within this exclusion); or
(6) Pertaining to the sale or rental or real estate property, to the sale of insurance, or to the sale of securities or commodities by a broker-dealer seller who is registered with the SEC.

There are always exceptions to the rule, so if you suspect you’ve been “done wrong” immediately seek legal counsel to learn what your legal rights and obligations are.
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Contract Newer.jpgThe Official Code of Georgia § 13-2-2 sets out “rules for interpretation of contracts generally.” The law states that the following rules, among others, shall be used in order to arrive at the truthful interpretation of a contract. This means if you are having a business dispute with your partner, vendor, tenant, or another company and a question turns on what the contract between you two actually means or whose version (yours or theirs) interprets the contract correctly, consider the following rules:

(1) Parol evidence is inadmissible to interpret the written contract.–Parol evidence is anything that is outside of the four written corners of the piece of paper that the contract is actually written on. This could mean conversations that you had over the telephone or notes written on a dinner napkin at a restaurant you were eating at during contract negotiations. The only time this outside evidence (“parol evidence”)should come in to interpret the meaning of the written contract is if it the written contract is somehow ambiguous (unclear) and it is obvious that the written contract wasn’t intended to represent the entire agreement.

(2) Words generally should be interpreted by their usual and common meaning; but a technical word used in particular trades should be interpreted the way they are generally used in that line of business. The local use of a word can be brought in as evidence to determine the actual meaning intended by the parties who entered the contract. In other words, if you and I were chicken farmers and we entered into a contract where you would sell me 500 Rock Cornish broilers, if there was any dispute as to what a “broiler” was, the courts would look to the ordinary local use of how Georgia chicken farmers interpret “broilers.”

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Thumbnail image for contract.jpgMany commercial contract agreements have provisions for attorney’s fees in the event one party breaches the contract. The question is: what does Georgia law say about collecting attorney’s fees from a contract? The Official Code of Georgia Annotated law, O.C.G.A. § 13-1-11, talks about the validity and enforcement of obligations to pay such fees.

Specifically, Georgia law O.C.G.A. §13-1-11 states that obligations to pay attorney fees and an interest rate shall be valid, enforceable, and collectable as part of a debt if collected by an attorney, as long as it is subject to the following:

(1) If your contract provides for attorneys fees in some specific percent of the principle and interest it will be valid and enforceable, but you can never charge over 15 percent of the principal and interest.

(2) If the term in the contract just doesn’t specify a percent, then the provision will be interpreted to mean 15 percent of the first $500.00 of principal and interest and 10 percent of the remainder.

(3) You need to first notify the person who owes you the money in writing that they have ten days after receiving the notice to pay the principal and interest they owe without having to pay for attorney’s fees. If they pay the principal and interest in full before ten days then they won’t be obligated to pay attorney’s fees. If the person who owes you the money refuses to receive delivery of your notice, it will still be considered giving notice.

You do however need to make sure you request the attorney’s fees in your demand letter because if you don’t include any reference to the attorney fees provision in your contract, then you have no right to them. And, if you need to sue to collect the money you are owed, a court cannot award you them either if you never provided notice. E.g. Quintanilla v. Rathur, 227 Ga. App. 788, 490 S.E.2d 471 (1997). Trust Assoc. v. Snead, 253 Ga. App. 475, 559 S.E.2d 502 (2002).

Since you do need an attorney to collect “attorney’s fees,” you do need to make sure you have competent legal counsel representing you in your business dispute involving a breach of contract.

But this is a good thing. Using an attorney’s fees provision is a good way to make sure you cover the cost of your legal fees in the event you get into a business dispute. Having an attorney to help you navigate complex Georgia law is much better than going it alone. In fact, going it alone is the best way to end up in a bad situation. Unfortunately, many times our business clients come in after their situation leaves them with no choice other than retaining legal counsel.

Hire an attorney who can set up preventative measures that place your business in the strongest financial and legal position possible. Smart business owners know this and know that retaining an attorney in order to set up their business to ensure that preventative measures are in place is the best way to save money and make money down the road. For example, it is key that competent legal counsel draft your contract in order to carefully preserve your legal rights. Not only to protect your business interests, but also so they can do the ” smaller things” ensuring that your contract allows you to collect attorney’s fees in the event you must go to court for a breach. These “smaller things” end up being huge, in the long run.
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Sometimes the different types of names for contracts can be confusing. Clients may be unclear as to what type of contract they have or what these words mean. Here is a brief explanation of the various kinds of contracts under Georgia law in simple plain English:

1. Executed Contract: This means that both parties to the contract have done what they are supposed to do. For example, if you pay me $2000 to deliver some cows, chickens, and horses to your farm and I do it, we have an “executed contract.” This means you did what you were supposed to do (pay me the money) and I did what I was supposed to do (deliver the farm animals.) There is nothing left to be done. O.C.G.A. § 13-1-2.

2. Executory Contract: Now let’s say that you paid me the $2000.00 and I delivered you the cows but I still had to deliver the chickens and horses. This is an executory contract which means that something still remains to be done by one of the parties to the contract. O.C.G.A. § 13-1-2.

3. Contract of Record: When a plaintiff (the person who claims injury over a contractual dispute) sues another (the defendant) in court over a contract and the Court renders judgment in favor of the plaintiff that court judgment becomes a contract of record. O.C.G.A. § 13-1-3. So for example, let’s say you hired me to represent you in a breach of contract dispute against Bob who was failing to deliver the chicken, horses, and cows you had paid him for. We sue Bob for breach of contract. The judge rules in your favor and awards you $10,000. That means that judgment becomes a “contract of record.”

4. Specialty Contract: This is just a fancy term for a “contract under seal” which is rarely done, but is considered a formal contract of “higher dignity” and is also subject to a longer statute of limitations. O.C.G.A. § 13-1-4.

5. Parol Contract: This is generally an oral contract and is just as legally enforceable as a written one. (Note there are limitations. Certain types of contracts always must be written.) O.C.G.A. § 13-1-6

6. Absolute or Conditional Contracts: A contract may be either absolute or conditional. Whenever you see words like “as long as” you know something is conditional. For example, a contract that says I will hold a pool party for you this Saturday in exchange for $1000.00 as long as it is sunny weather would be a conditional contract. The condition of course being the weather. If it rains on Saturday, there is no obligation to perform. O.C.G.A. § 13-1-7

7. Entire or Severable contracts: A contract can be “entire” which means the entire contract stands or falls together. This is not an ideal contract and is a good reason as to why it is so important to have an attorney draft your contract. For example, the lawyers at our firm draft contracts that are severable, meaning if it turns out that a certain portion of the contract ends up being ruled as void or illegal by a judge, the entire contract won’t get thrown out on its head. Rather, that portion (the invalid portion) will be “severed” from the contract and the remaining portion of the contract will still apply. O.C.G.A. § 13-1-8
Anytime it is necessary to enter into a contract with another party or enter into a business relationship, it is worth doing it right! The law can be very technical and you want to make sure that in the event of a future misunderstanding or dispute that the contract will be interpreted by a judge in a way that favors you. The only way to insure this is to seek legal counsel prior to entering into a contract.
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Thumbnail image for Contract Newer.jpg“How can I be sure that this non-compete contract is fair and enforceable?” is a question many clients ask us whether they be employers or employees.

For employers:

Our advice is this: Don’t go it alone! Believe it or not, there are many employers who think that it is okay to just “cut and paste” whatever contract they find googled over the internet. This is the fastest way to draft a bad contract. The most important thing for any contract is enforceability. That means you know that in the event of a dispute your contract will hold up as “enforceable” in a court of law. Cutting and pasting a contract is the surest way to have your important legal agreement fail to hold up in a court of law, thus failing to protect your and your company.

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Judge.jpgIn Georgia, and everywhere, as too many employers know, employees solicit (attempt to steal) clients from their former employer. There exist obvious and significant financial and professional incentives for employers to prevent this from happening. The answer is a well drafted non solicitation agreement, amongst other safeguards. The problem is that many non solicitation agreements are poorly drafted, because whoever drafted the agreement failed to take into account applicable, and stringent, Georgia laws. In the world of non compete/solicitation agreements, Georgia law is notorious for being extremely unfavorable to employers. And although the Georgia legislature passed employer-friendly legislation (HB 173) in this area, and Governor Sonny Perdue signed that legislation into law, voters must still amend the Georgia Constitution so that the legislature has the power to make HB 173 actual law. That may be difficult.

Regardless, Georgia courts, currently, strictly construe non solicitation agreements. That means: if any potion of your non compete/non solicitation agreement is held to be invalid, the entire agreement is void.

We have written about non compete and non solicitation agreements before on this blog. Today, we are writing this entry to give you a few considerations when reviewing or attempting to draft your own non solicitation clause, although we highly recommend that you seek a good lawyer who has experience in this area to help you with drafting these types of agreements; the stakes are too high to rely on a poorly drafted agreement made by someone who is not familiar with Georgia law.

Some considerations:

The law: “Georgia law is clear that unless the non-solicit covenant pertains to those clients with whom the employee had a business relationship during the term of the agreement, the non solicit covenant must contain a territorial restriction.” Trujillo v. Great Southern Equipment Sales, LLC, citing Advance Technology Consultants v RoadTrac, 250 Ga. App 317.

In Trujillo (the above-mentioned case) the employer illegally expanded the class of prohibitve clients by stating, within the non solicitation clause, that

“the non-solicitation restriction set forth in this Section 2 is specifically limited to Customers of Employer with whom Employee had contact… or about whom Employee had a confidential or proprietary information becasue of his/her position with Employer.”

As you can read, the employer started off great, by restricting the scope of the clause to clients that the employee truly had contact with. But then the non solicitation clause went awry of strict Georgia law, by stating that the employee could not solicit clients that he or she had gained confidential or proprietary information about, by merely working for the employer. While you may think that’s a reasonable restriction, Georgia courts do not.

The Trujillo court reasoned that the language pertaining to confidential and proprietary information did not constitute a valid confidentiality provision or a “reiteration” of the confidentiality clause found in Trujillo’s contract. Rather that language, in the Court’s opinion, constituted an impermissible attempt by the employer to broaden the class of customers (clients) whom Trujillo could not solicit. As a result, the court stated–and this is what really hurts employers– “because the non-solicitation clause was unenforceable, the non competition clause included in the agreement was likewise unenforceable.” That’s a result that you as an employer do not want.

What lessons can be learned? First, get a good lawyer that knows Georgia law in the area of non compete non solicitation agreements. Second, regardless if you’re an attorney or not, don’t try to be “slick” when drafting these agreements. The Trujillo court made it clear: just because you do not use the red-flag term all clients does not mean that you can avoid the harsh and scrutinizing results of Georgia law. Moreover, understand fully that if you decide to use broad language such as all clients, strongly consider placing a geographical limitation within the non solicitation clause.

Additionally, understand that non solicitation agreements do not mean that a client cannot solicit your employee– this area of law is tricky and involves other complex legal issues.

Ultimately, when you attempt to use a non solicitation agreement against an employee to protect your business interest, your success will depend on the facts of your case as applied to Georgia law. You need a good lawyer.
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When it comes to Georgia contract law, poorly drafted non-compete employment agreements have caused severe financial loss and competitive advantage to many businesses. If your business wants to protect its clients, potential customers, and secured information from being used by employees once they leave, then consider the following:

The main reason why non-compete agreements fail in Georgia is because the drafter (attorney) of the agreement simply did not understand the nuances regarding case law in this area and the distinctions between a non-compete covenant, a non solicitation covenant and a non recruitment covenant. Each of those three covenants is given different treatment under Georgia law.

In Georgia, non-compete agreements (covenants) fall under strict scrutiny and that means: if even one clause of your employee’s non-compete agreement is held invalid, the whole agreement is invalid. When determining whether your non-compete agreement is valid, Courts look at the duration of the restriction; the conduct restricted; and the geographical scope of the restriction, amongst other criteria.

However, “non solicitation” agreements are analyzed differently. Because of a 1992 Georgia Supreme Court case, non solicitation agreements (covenants) do not have to specify geographical limits. That’s a vital distinction. But understand: non “solicitation” agreements nevertheless have restrictions and, again, if one of these restrictions is violated, you run a high risk of having your entire non solicitation agreement held unenforceable, invalid.
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