To help protect intellectual property and other company secrets, non-compete agreements have become common in many industries. When a former employee violates a non-compete agreement, their former employer may bring a claim against the new employer for “tortious interference.”
However, a recent case from the Georgia Supreme Court could change the way former employers seek claims against new employers and against their former employees.
If you believe that one of your former employees breached their non-compete agreement and that you may have a claim for breach of contract and tortious interference, contact a Georgia complex business litigation attorney from Griffin Durham Tanner & Clarkson LLC today.
In the meantime, keep reading to learn about the recent tortious interference case and how it could affect you.
What is tortious interference?
Non-compete agreements can be found in most industries thanks to their staunch protection of intellectual property and other company secrets. These documents are designed to protect businesses from former employees who divulge trade secrets to their new employers.
When a former employee violates a non-compete agreement, their former employer may bring a “breach of contract” claim against them, but that’s not the only avenue for recourse. If the new employer facilitates or requests that the employee violate the non-compete agreement, the new employer could face a claim for “tortious interference.”
Tortious Interference: Brief History and Case Study
For decades, controlling case law held that interference with contractual relations, such as inducing one to breach his or her contract, is an actionable tort.1
Once a plaintiff demonstrates the existence of a valid contract (including non-compete agreements and other restricted covenants), they’ll have to prove several points in order to bring a cause of action for tortious interference:
- The defendant acted improperly and without privilege;
- Acted purposely and maliciously with the intent to injure;
- Induced a third party not to enter into or to continue a business relationship with the plaintiff; and
- Caused the plaintiff some financial injury.2
In 1998, Carroll Anesthesia Assoc., P.C. v. Anesthecare, Inc. advanced those notions by holding that a competitor may be found to have tortiously interfered with an employer’s contract with its employee(s) if:
- The competitor or new employer was found to have “induced and encouraged” an employee to discontinue their employment and to breach the non-compete agreements in their employment contracts;
- If there was evidence of the competitor’s plan that was designed to impair the employer’s financial position; or
- If the competitor made a concerted effort to deprive the employer of its employees so that it had nobody left to do the work.
Recent case law may have changed the manner in which you may enforce your rights upon your former employee’s breach of their employment agreement and your rights to level a claim against the new employer who facilitates and encourages the breach.
Tortious Interference Laws Regarding Non-Compete Agreements Have Changed
In June 2022, Parnell v. Sherman & Hemstreet, Inc. shifted the way former precedent is applied in cases of tortious interference of restrictive covenants. The appeal from Parnell and RE/MAX stemmed from a suit filed by Sherman & Hemstreet (S&H), a real estate brokerage, against Michael Parnell, a former real estate agent for S&H, for breach of restrictive covenants in his independent contractor agreement, including confidentiality, solicitation, and non-compete clauses. S&H’s suit was also against Parnell’s new employer, RE/MAX, for tortious interference.
S&H’s complaint alleged that RE/MAX:
- Hired Parnell to perform the same, or substantially similar, services to those he performed for S&H within the same geographic region.
- Conspired with or induced Parnell to breach the non-compete clauses of his independent contractor agreement with S&H.
- Continued to breach Parnells non-solicitation and non-compete clauses even after receiving notice of the agreement from S&H.
- Acted with malice to injure S&H’s current business relationships with its current and/or prospective clients and customers.
- Caused S&H’s current and/or prospective clients and customers to discontinue their relationships or discussions for further business relationships with S&H.
The trial court issued a temporary restraining order (TRO) against Parnell which temporarily prevented him from working pending a court ruling on the suit. The appellate court later reversed the TRO because S&H failed to properly verify their complaint or motion.
RE/MAX filed a motion to dismiss S&H’s suit against them, the trial court denied the motion, but the Court of Appeals reversed that ruling, which is where new changes may lie.
The Court of Appeals held that even if the facts of S&H’s complaint were assumed to be true, S&H failed to allege that RE/MAX was a “stranger” to Parnell’s agreement or his underlying relationship with S&H, the trial court’s denial of RE/MAX’s motion to dismiss must be reversed.
The “Stranger Doctrine”
The Georgia Supreme Court has held and emphasized that “to be liable for fortuitous interference with business relations, one must be a stranger to the business relationship giving rise to and underpinning the contact.”4 When a defendant has “a legitimate interest in either the contract or a party to the contract, he is not a stranger to the contract itself or to the business relationship giving rise thereto and underpinning the contract.” Further, the fact that a defendant did not sign the contract doesn’t preclude a finding that they were not a stranger to the contract.5
In its opinion, the Court of Appeals noted that because Parnell solicited S&H’s clients on behalf of RE/MAX, they had a legitimate financial interest in Parnell violating the agreement if he successfully induced S&H’s clients to move their business to his new employer and were not a stranger to Parnell’s relationship with S&H. Therefore, RE/MAX could not be held liable for tortious interference.
This may be the first time that a Georgia court has held that a new employer isn’t a stranger to the agreement or relationship between an employee and their former employer.
Although this case serves as a reminder to employers of what the facts required for a successful claim, the best way to ensure your complaint proves all elements required in Georgia, contact a Georgia complex litigation attorney.
Connect with a Georgia Complex Business Litigation Attorney
The ruling in Parnell gives rise to more considerations that should be made when filing a claim for tortious interference against a competitor when an employee has violated their employment contract, including any confidentiality and non-compete agreements. To ensure that you have the highest chance of success when filing your claim, connect with the Georgia complex litigation attorneys at Griffin Durham Tanner & Clarkson LLC today.
Contact us online or call our Atlanta office at (404) 891-9150 or our Savannah office at (912) 867-9140.