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Non-Compete Clause: Reality in Georgia

By Messenger Staff
Wednesday, March 29
The Court sets first ever precedent in Georgia to issue injunction enjoining the former top manager of TBC Bank from working for the competing organization for the period of six months. The impact of this first judicial decision on the industry could be significant, especially with respect to so-called “employee poaching” (hiring talents away from a competitor).

In fiercely competitive market conditions, banking sector is rather sensitive to this matter. Top managers usually have full access to trade secrets of a company, and the risk of competing firms getting hold of such proprietary information is higher.

On March 15, 2017 the Court of Appeals of Georgia granted injunctive relief to TBC bank (i.e. a court order requiring a person not to do a specific action) and prohibited defendant David Tsiklauri’s employment, as well as any direct or indirect cooperation with Bank of Georgia (fully owned subsidiary of BGEO Group PLC) for the period of six months starting from January 1, 2017.

Attorney Zviad Kordzadze represented TBC Bank in this litigation. According to Mr. Kordzadze, despite the fact that the Court has not yet heard the case on the merits, by virtue of this ruling, which grants equitable relief to TBC Bank, the Court enforced the non-compete clause for the period of six months.

“This non-compete obligation is set forth in the service contract between David Tsiklauri, a director of the bank, and his ex-employer TBC Bank. According to the contractual non-compete clause, David Tsiklauri must refrain from working for a competing organization (a bank or a financial institution in Georgia) for the period of six months following the termination of employment. Because the service contract between David Tsiklauri and TBC Bank was terminated on January 1, 2017, the non-competition obligation was enacted as of this date and will last for six months. In Court, David Tsiklauri confirmed his employment with the competing bank as a director in charge of corporate banking, which is exact same position as he held at TBC Bank. Undoubtedly, this was an important ground for the Court to grant injunction in favor of the former employer.

Without equitable relief (injunction in this case) TBC Bank’s lawful claim could have been remained unenforced, especially when the court proceedings on the merits are quite time-consuming in Georgia. Without such injunction, David Tsiklauri would have been able to totally circumvent the non-compete obligation. This would of course result in irreparable harm to TBC Bank and no legal remedies would compensate such damage,” declares Mr. Kordzadze.

Attorney Kordzadze further states that the court decision was already submitted to national enforcement bureau for enforcement proceedings. The injunction compels the defendant to refrain from specific act, namely to work for the competing company. A party in breach of an injunction can be charged for contempt of court and can face criminal penalties.

Mr. Kordzadze also discusses possible effects of this decision on industry at large, especially with regards to talent acquisition policies. According to the attorney: “this precedent safeguards employer’s legitimate interests when it comes to enforcement of non-compete obligations of its key employees. Any employer has a lawful interest to prevent its former employee from working in the competing organization for a certain period of time. The possibility of a former employee gaining competitive advantage by utilizing his/her acquired skills, knowledge as well as sensitive information for the benefit of the competing firm is high. This could result in unfair competition. On the other hand, certainly, non-compete obligation must be reasonable and former employer must pay to the employee an adequate compensation for the duration of the restriction. In TBC Bank’s case too, the employee was offered a six-month compensation for the duration of non-competition. The companies will hereafter have legal certainty that the non-competition agreements are perfectly enforceable in Georgia. Such legal certainty is especially important for banking sector, where the information obtained during the employment is extremely sensitive and unfair competition could be rather damaging for the business.“

Although this case is a first precedent in Georgia, the practice of non-compete agreements can be found in many countries worldwide. Companies, especially those heavily dependent on intellectual resources or those with sensitive client records, commonly enact such restrictive covenants for their employees. The test for non-compete covenants to be enforceable is as follows: it shall serve legitimate business interests of an employer, it shall not impose undue burden on an employee, and it shall be consistent with public policy (in terms of time and geographic limitations). In Georgia too, our law allows for non-compete agreements in labor relationships for the duration of up to 6 months as long the employee is paid adequate remuneration. In other words, in order to be enforceable, a non-compete covenant should be reasonable and must take into account employer’s as well as employee’s lawful interests.