Protecting Your Business

By Business and Legal Reports, Inc.

After a Georgia company reduced a vice-president’s bonus, he decided to open his own business. He discussed his departure with his supervisors and thought he had arrived at an amicable parting, only to be sued after he left the company.

What happened. “Fawkes” owned a share of an insurance company named Hamilton, Dorsey & Alston. Wachovia Insurance Services purchased Hamilton on May 1, 2001. Fawkes received cash and Wachovia Insurance stock and was given a four-year contract to work as a senior vice president in Wachovia’s employee benefits area.

In September 2004, Wachovia Insurance’s president asked Fawkes to sign a confidentiality and nonsolicitation agreement that would make Fawkes an at-will employee. Two years later, Wachovia reduced Fawkes’ bonus and commission structure. In April 2007, Fawkes decided to resign and open a competing business. He met with the company president and his supervisor to discuss the plan and to assure them that he intended to honor the nonsolicitation agreement. Fawkes’ supervisor formally informed the department that Fawkes was leaving to start his own firm.

On April 23, with his supervisor’s permission, Fawkes sent a letter to 90 of his business contacts informing them that he was starting his own business. On April 30, his employment with Wachovia Insurance ended. Two months later, Wachovia sued Fawkes and his new business for breach of the nonsolicitation agreement, misappropriation of trade secrets, and computer theft. Fawkes asked the court to dismiss the case.

What the court said. Wachovia alleged that Fawkes had breached his written agreement not to solicit clients. Fawkes countered that the covenant imposed an unreasonable restraint on his ability to do business because it forbade him to solicit clients that had already ended their relationships with Wachovia Insurance. The court agreed with Fawkes; the covenant defined a customer as “any individual or entity that has purchased an insurance contract through the Company,” which the court found to include too many customers that no longer had a relationship with Wachovia. It thus found the nonsolicitation agreement too broad to be enforceable.

Wachovia also complained that Fawkes had breached the agreement by hiring two of its employees for his new company. In fact the employees had approached Fawkes and he had not approached or solicited them, so the court found no breach.

Wachovia next argued that Fawkes had misappropriated trade secrets by using a Wachovia Insurance client list from password-protected company computers. To obtain relief under the Georgia Trade Secrets Act (GA Code Sec. 10-1-760), Wachovia needed to show that this information was not commonly known to the public. But Fawkes proved that all of the information was available on a public website (“freeERISA.com”), commonly used by employee benefits companies for prospecting for customers. The court ruled that Fawkes had not misappropriated Wachovia’s trade secrets.

Finally, Wachovia claimed that Fawkes had committed “computer theft” because Wachovia Insurance employees who moved to Fawkes’ new company used Wachovia’s client contact information on their Blackberry® devices in their new employment. GA Code Sec. 16-9-93(a) defines computer theft as “knowingly using a computer network without permission and with the intention of taking someone else’s property.”

But Fawkes’ employees were merely using Blackberry devices that contained information Wachovia Insurance also had; Wachovia could not prove that they were using its own computer network without permission and intending to steal Wachovia’s data. The court agreed that Wachovia had shown no evidence of computer theft. It dismissed all the claims against Fawkes.

Wachovia Insurance Services v. Fallon, Ga. Ct. App., No. A09A0140 (July 14, 2009).

Professional Pointer: This employer filed this lawsuit to send “a message to others,” to communicate to future employees that the company would not tolerate them taking its business. Before trying to send a similar message, make sure you have a solid case with real damages.

Contributed by BLR, Inc. Read plain-English analysis on Employment Contracts in Georgia.