CONTRACTS

"Tolling Clauses" in Noncompetition Covenants

Of the two remedies for the breach of a valid noncompetition covenant, injunctive relief and compensatory damages, injunctive relief may be preferred by covenantors, because proof of damages may be difficult and the covenantor may simply be more interested in preventing the competition. Oddly, the effect of a breach may be to deprive the covenantor of an injunctive remedy.

To illustrate, consider the case of a former employee who, six months into a one-year noncompetition covenant, breaches the covenant. If the covenant is not enforced immediately by way of a preliminary injunction, a judgment holding the covenant enforceable will probably come after the expiration of the one-year period. Judgments holding covenants enforceable are almost invariably too late in this sense where they are obtained upon appeal from trial court rulings to the contrary. If the duration of the covenant has expired, the breaching covenantor will have competed during the period where competition was forbidden.

In order that covenantees be afforded the complete protection they have been promised, should breaching covenantors be prevented from competing after the judgment for a period of time equal to that during which they wrongfully competed? Some courts have held that the aggrieved covenantee is entitled to such relief. E.g., Roanoke Engineering Sales Co. v. Rosenbaum, 223 Va. 548, 290 S.E.2d 882 (1982).

Some covenantees are seeking to guarantee such protection by the terms of the noncompetition covenant itself. In a case which appeared to reverse two decisions to the contrary, the Georgia Court of Appeals recently ruled that so-called "tolling provisions" in noncompetition covenants can be enforceable. Paul Robinson, Inc. v. Haege, 218 Ga. App. 578, 462 S.E.2d 396 (1995). To hold otherwise would "reward the employee's breach of contract, encourage protracted litigation, and provide an incentive to engage in dilatory tactics."

Inasmuch as Georgia is notable for its extreme antipathy to noncompetition covenants in general, the ruling in Paul Robinson should encourage careful attorneys everywhere to include such tolling provisions in noncompetition covenants they draft on behalf of the covenantee.

Ed Sullivan

Senior Attorney, Contracts

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