In February of this year, Credit Suisse lured away seven of Goldman Sachs’ top Wealth Managers. Purportedly some were offered upwards of $10 million to move to Credit Suisse. According to some of the articles written, Credit Suisse is the devil, and companies like them are the reason Georgia needs to change their view on noncompete and non-solicitation agreements. It is amazing how much media this situation got in Atlanta that was not just gossipy news but highly politically charged news. I am sure the defection did hurt Goldman Sach’s business. However, Goldman Sach’s is hardly the poster child for reform.
How shocking, a Wall Street firm stole top talent from another top Wall Street firm. Wrong. This is not shocking at all and is business as usual. The top Wall Street Firms have been raiding each other’s top employees for decades. In this instance, Goldman Sachs filed a lawsuit not against Credit Suisse, but against the seven wealth managers. It was voluntarily dismissed the next day. What makes this situation so ironic is that Goldman Sachs is no saint. This is a situation of what is “good for the goose is good for the gander.” In 2010, I believe the score is Goldman Sachs 55 and Credit Suisse 7. Earlier this year, Vestra, a Goldman Sachs backed UK company lured an estimated 55 employees from UBS. Shocking really shocking…..not.
Full disclosure: Back in the 1990’s, I was an employee who was lured away from Credit Suisse, then Credit Suisse First Boston, by Smith Barney with 3 other employees. In that point in time very few people had non-solicitation agreements. Obviously, Credit Suisse has more than thrived since then to have the money to lure people from Goldman Sachs for millions of dollars. Over the past three decades, it hasn’t been unusual for the very top Directors and other top employees to be lured away from one Wall Street firm to join another and lured back by the original firm in a year or two.
So why has this business as usual situation in Georgia led to many trumpeting the horn for stricter noncompete and non-solicitation agreements? Wall Street already has a current master agreement that all Wall Street Firms and Investment Firms are encouraged to sign that says a firm will honor nonsolicit/non-compete employment agreements. If Goldman Sach thought honoring non-solicitation and noncompete agreements were good for business in the long run, they would have signed it. Or was it their arrogance of being one of the biggest or strongest bullies on the block that made them feel immune to the ramifications of not playing nice with others? Credit Suisse is another firm that has up to this point not signed the agreement either; probably for the same reasons as Goldman Sachs.
Noncompete and non-solicitation agreements have been problematic for both employers and employees in Georgia’s current environment. I agree Georgia needs to review their approach to non-solicitation agreements and noncompete agreements. However, it needs to be viewed in a real context and not the lens of hyperbole. Goldman Sachs is not a victim but the recipient of their own practices. Yes, they might lose millions of dollars. I am sure UBS probably lost millions of dollars also when Vestra hired their employees.
In the real world, it is not appropriate to leave each contract brought before the court to individual judge’s discretion on whether they are enforceable or not. The Georgia Courts’ approach with these type of contracts is a little like defining pornography…I know a bad contract when I see one. On the flipside it is not o.k. to go too far the other way by changing the Georgia Constitution to the point it makes it impossible for an employee to work for up to three years after leaving a company due to corporate downsizing.
In November, the public is going to be asked to vote to make the following changes to the Georgia Constitution in regards to non-solicitation and noncompete agreements.
H.B. 173, codified in relevant part at O.C.G.A. §§ 13-8-2.1 and 13-8-50 to -59, provides for a host of revisions to the current status of Georgia law on restrictive covenants.
- Georgia courts will be allowed to partially enforce restrictive covenants that are otherwise overbroad, thus reversing Georgia’s strict and longstanding “no blue-penciling” rule;
- provides that in-term restrictive covenants will not be considered unreasonable because they lack specific limitations on the scope of activity, duration, or territory, as long as the covenants promote or protect the purpose or subject matter of the agreement or deter any potential conflict of interest;
- establishes a presumption that post-employment noncompete agreements with a duration of two years or less are reasonable;
- establishes a presumption that post-employment customer and employee non-solicitation agreements with a duration of three years or less are reasonable;
- permits employers to extend post-employment restrictions on customer solicitation to customers and potential customers with whom an employee did not have actual contact as long as, within two years prior to the date of termination, the employee supervised the employer’s dealings with the customer, obtained confidential information about the customer, or earned compensation, commissions, or other earnings as a result of the customer’s purchase of the employer’s products or services; and
- permits employers to enforce post-employment restrictions on employee solicitation that lack an express reference to a geographic area.
See Paul Hastings Client Alert for complete information.
It is about time that Georgia did away with the non-blue penciling law that made it hard for employers to have any kind of meaningful protection. The rub for the employee is that Georgia is an “at will” state. A company can end your employment at anytime. This wouldn’t be such an issue if noncompete and non-solicit agreements were only being signed by the very top level executives. Up until recently, they were the only employees asked to sign such agreements. Now many companies make all employees sign a non-solicit or noncompete agreement whether they are a top level executive or integral to the overall big picture or not. It is hard to discern what the appropriate balance is for protecting the employer, the employee and the public’s intrinsic right to have free competition and the right to do business with whomever they want.
I would like to hear your thoughts on the amendments to the Georgia Constitution. Is it not enough of a change? Does it go too far? Or do the changes strike the right balance? Why do you believe that some of the Wall Street firms don’t see the advantage of agreeing to honor nonsolicitation/noncompete agreements and completely ignore employment agreements?