Non-Compete Clauses in Georgian Law-Governed Employment Contracts

While the Labour Code of Georgia (the Labour Code) is primarily designed to protect employees’ rights, it also ensures fair working conditions. Additionally, it acknowledges the legitimate interests of employers in maintaining competitiveness and safeguarding sensitive business information.

In this context, the Labour Code permits the inclusion of non-compete clauses and other restrictive covenants in employment contracts. This strikes a balance between employee protections and the need for businesses to protect their proprietary interests.

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Employer Protections

The Labour Code expressly permits employers to include restrictive covenants. These covenants prohibit or limit an employee’s engagement in secondary employment with direct competitors during their employment. The primary purpose is to prevent the disclosure or misuse of sensitive business information, trade secrets, or proprietary knowledge. Additionally, the Labour Code recognises that, under specific circumstances, such as when an employer has made substantial investments in an employee’s professional development or specialised training, post-employment restrictions, also known as garden leave, may be lawfully imposed at the employer’s unilateral discretion.

If stipulated in the employment agreement, the employer may require the employee not to use the knowledge and experience gained during their tenure with a competing employer. This restriction can last for up to six months following termination, and this period must be paid. These provisions are designed to protect the employer’s interests. They help mitigate entrepreneurial risks and are consistent with principles of fairness and mutual consent.

Who Qualifies as a Competitor?

Non-Compete Clauses in Georgian Law-Governed Employment Contracts

These non-compete covenants are applicable exclusively in cases where the alternate employers in question are competitors. In determining whether an entity qualifies as a competitor, the employer’s field of activity must be taken into account. Established judicial practice dictates that the term “competitor” must be interpreted as narrowly as possible.

Specifically, the assessment should focus on whether the former and new employers operate within the same sector. For example, whether they manufacture and/or sell the same or identical products, among other relevant factors. This also involves a detailed comparison between the duties and responsibilities in the potential new role. It compares these to those held during the previous employment. This approach ensures that the restriction is not applied excessively and remains proportionate to its intended purpose.

Liquidated Damages for Breach

In furtherance of the objectives of fair competition, the Labour Code allows for the imposition of liquidated damages (penalty). This applies to an employee who breaches a post-employment non-compete covenant. Such provisions are valid contractual mechanisms designed to uphold fair competition.

Judicial Discretion in Enforcement

However, judicial practice reveals that courts exercise significant discretion in reducing the amount of liquidated damages stipulated in employment contracts. In assessing the appropriateness of the penalty, courts consider factors. These include the employee’s degree of fault, the seriousness and extent of the breach, the risk to the employer, and the employer’s legitimate expectations.

In summary, while post-employment restrictions serve to protect employers’ legitimate business interests. These include confidential information and competitive advantage. However, their application must be proportionate, clearly defined, and balanced by fair compensation. Both international standards and Georgian law underscore the necessity of clarity, fairness, and judicial oversight. These are needed to prevent abuse and to safeguard employees’ fundamental rights.

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