What Are The Limits Of A Court’s Ability To Enforce A Non-Compete Agreement?

Stokes Wagner

The parties in the case of Daneshgari v. Patriot Towing Services, LLC, No. A21A0887 (Ga.App. Oct. 21, 2021), had entered into a four-year non-compete agreement in June of 2016 that Daneshgari and his partner began to violate within a month after signing the agreement. After PTS sued to enforce the agreement in 2018, a trial court in Georgia granted PTS’s motion for a preliminary injunction and ordered the defendants to cease violating the noncompete provision. The defendants ignored the court’s injunction and continued to operate their competing business. The trial court found Daneshgari in willful civil contempt of the preliminary injunction and ordered him to be incarcerated until he paid PTS $20,000 in attorney fees. Less than one week later, Daneshgari paid the $20,000 and was released from incarceration.

Daneshgari and his partner continued to violate the injunction, however, leading to a second contempt hearing in September 2020. After finding Daneshgari in contempt, the court ordered him to pay attorney fees again – but more significantly, extended the injunction against violating the noncompete agreement “until further order of this Court.” The non-compete agreement would have expired by its terms several months earlier, in June of 2020. For this reason, the court of appeals vacated the trial court’s indefinite order extending the injunction, rejecting the idea that “equity permits a court to extend the period of a non-compete agreement,” even in the context of a court exercising its power to punish contempt.

A trial court still has the power to enforce its contempt rulings, which it exercised in this case by imposing monetary penalties and even incarcerating one of the defendants for a period of time. In the future, courts in Georgia faced with unapologetic flouters of enforceable non-compete agreements will need to exercise these kinds of powers prior to the expiration of the agreement. Companies faced with flouters of such agreements should also be on notice that they must seek to enforce the agreement immediately so that it will not expire before a court can exercise its power to enforce it.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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