Georgia’s Certificate of Need (“CON”) program,[i] administered by the Georgia Department of Community Health (“DCH”) Office of Health Planning, controls the creation and expansion of health facilities in Georgia.[ii] With the goals of measuring need, controlling costs, and guaranteeing access to healthcare, the CON program regulates most health care facilities in Georgia, including hospitals and long-term care facilities.[iii]

In recent years, states have begun enacting legislation repealing or limiting the applicability of CON laws.[iv] For example, in 2019, Florida amended its CON requirements for many types of health facilities to limit its regulation to nursing homes, hospices, and intermediate care facilities for the developmentally disabled.[v] Similarly, South Carolina repealed its CON requirements for most health facilities, notably excluding nursing homes.[vi]

Georgia followed suit with the Georgia General Assembly considering legislation to change the CON requirements during the 2023 legislative session.[vii] Critics of the CON program argued that it is outdated and stifles access to healthcare in rural areas.[viii] While no changes were made to the CON program during the 2023 legislative session, both the Senate and House created special study committees tasked with reviewing Georgia CON laws and recommending reform for the 2024 legislative session.[ix]

The Final Report of the Senate Certificate of Need Reform Study Committee recommended sweeping changes to Georgia’s CON program.[x] Finding that the CON laws prevented competition and limited advancement in health care delivery, particularly in rural communities, the Senate Committee proposed that the legislature fully repeal Georgia’s CON laws.[xi] And if not a full repeal, the Senate Committee recommended limiting the scope of the program by removing certain facility types and bed expansion from CON regulation and eliminating the cost thresholds.

Following the Senate Committee’s recommendation, the Senate will again consider legislation altering the CON requirements this legislative session. The Senate read and referred SB 442 on January 31, 2024, to the Senate Regulated Industries and Utilities committee.[xii] The bill repeals all existing CON requirements for any new or existing health care facilities in counties with a population of less than 35,000.[xiii] Also, on January 8, 2024, the Senate recommitted last year’s proposed legislation addressing CON reform, SB 162, to the same committee.[xiv] The current version of SB 162 limits the certificate of need program to a narrower set of health care facilities, including skilled nursing facilities, intermediate care facilities, personal care homes, and home health agencies.[xv]

FH2’s corporate team will continue to monitor proposed CON legislation and other Certificate of Need developments in Georgia and is available to assist healthcare providers with Certificate of Need questions and issues, including how these changes may impact both operations and asset transfers and sales for healthcare providers in Georgia. If you have questions regarding Georgia’s Certificate of Need reform and its potential impacts on your business, please contact Andrew Hazen (; 770-771-6818) or Anne Marie Simoneaux (; 770-771-6811) or visit to learn more about how the attorneys at Friend, Hudak & Harris, LLP can help.


[i] See O.C.G.A. § 31-6-40 to 31-6-50; Ga. Comp. R. & Regs. § 111-2-2.

[ii] Certificate of Need (CON), Ga. Dep’t of Cmty. Health, (last visited Jan. 31, 2024).

[iii] See Certificate of Need (CON), supra note ii; O.C.G.A.§ 31-6-2(17).

[iv] See, e.g., Certificate of Need State Laws, Nat’l Conference of State legislatures (Jan. 1, 2023),

[v] See Certificate of Need State Laws, supra note iv; Hedy Silver Rubinger & Charmain A. Mech, No Need for Certificate of Need: Florida Eliminates Certificate of Need Review for Specialty Hospitals, Arnall Golden Gregory (June 22, 2021),

[vi] Partial Repeal of Certificate of Need (CON) Program, S.C. Dep’t of Health and Envtl. Control (June 8, 2023),

[vii] See SB 162, Ga. Gen. Assembly, (last visited Feb. 7, 2024); SB 99, Ga. Gen. Assembly, (last visited Jan. 31, 2024).

[viii] See, e.g., Donovan J. Thomas, Georgia Laws for Opening or Expanding Hospitals Getting Review by State Senate, AJC (June 13, 2023),; Greg Bluestein, Ariel Hart & Zachary Hansen, A Burt Jones-backed Hospital Overhaul Draws Scrutiny, AJC (Mar. 20, 2023),

[ix] See SR 279, Ga. Gen. Assembly, (last visited Jan. 31, 2024); HR 603, Ga. Gen. Assembly, (last visited Jan. 31, 2024).

[x] Final Report of the Senate Certificate of Need Reform Study Committee (SR 279), Ga. State Senate Office of Policy & legislative Analysis, 14 (Nov. 29, 2023), [hereinafter Senate Committee Final Report]. Note that the House report did not specify any recommendations. See Final Report: House of Representatives Study Committee on Certificate of Need Modernization, House Budget & Research Office (Dec. 11, 2023),

[xi] Senate Committee Final Report, supra note x, at 14.

[xii] SB 442, Ga. Gen. Assembly, (last visited Feb. 7, 2024); Senate First Readers: Thirteenth Legislative Day, Ga. Gen. Assembly, 4 (Jan. 31, 2024),

[xiii] SB 442 (as introduced LC 33 9624), Ga. Gen. Assembly, 1–2, (select “Current Version”) (last visited Feb. 7, 2024).

[xiv] See also SB 162, supra note vii.

[xv] SB 162 (as introduced LC 33 9350), Ga. Gen. Assembly, 6, (select “Current Version”) (last visited Feb. 7, 2024)

Corporate Transparency Act


by Andrew Hazen, Matthew Haan and Anne Marie Simoneaux
FH2 Corporate Practice Team
Updated February 1, 2024

On January 1, 2024, the requirements of the Corporate Transparency Act (“CTA”) will take effect. Under the CTA, many small and mid-sized businesses will be required to file reports disclosing information about their business and its ownership. Pre-existing entities have until January 1, 2025, to file all necessary reports, while entities created during the 2024 calendar year must file the reports within 90 days from creation. Thereafter, entities created after January 1, 2025, will have 30 days to file their initial reports.

Compliance with the CTA requires an entity to determine whether it is required to file a report and what information it must disclose, including who qualifies as the “beneficial owners” of the entity. Notably, compliance also requires filing updated reports any time there is a change to any information previously reported pursuant to the CTA.

What is the Corporate Transparency Act?

The CTA is federal legislation requiring reporting of entity information to support national security and law enforcement activities to counter money laundering, the financing of terrorism, and other illicit activity.  The CTA introduces new requirements for certain businesses and other corporate entities, defined as “reporting companies”, to disclose information about the entity and its “beneficial owners” to the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”). 31 U.S.C. § 5336.

What is a reporting company?

Most small businesses will be required to report with FinCEN. The term reporting company is defined broadly in the CTA to include any corporation, limited liability company, or other entity that is created through filings with a secretary of state or similar office under the law of a state. It also includes entities that are formed under the laws of a foreign country and registered to do business with a state office.

What entities are exempt from reporting requirements (i.e., not a reporting company)?

There are 23 types of entities exempt from the reporting requirements. Notable exemptions include those for banks, insurance companies, tax-exempt entities, securities reporting issuers or certain other entities subject to regulatory oversight. Additionally, an entity that qualifies as a “large operating company” is exempt, meaning it (i) employs more than 20 full-time U.S. employees, (ii) filed a federal U.S. income tax return for the prior year showing more than $5 million of revenue, and (iii) operates in physical location in the U.S.

What must reporting companies disclose to FinCEN?

The report required by the CTA seeks information about the reporting company, including its full legal name, any trade or dba name, current U.S. address, jurisdiction of formation, and IRS TIN (EIN).

Additionally, for each beneficial owner, the reporting company must provide that person’s full legal name, date of birth, current address, a unique identifying number, and an image of an identifying document. Finally, for entities created on or after January 1, 2024, the report must also include this information about a reporting company’s company applicant.

Who are beneficial owners and company applicants? 

The term beneficial owner is defined to include an individual who, directly or indirectly, either (1) exercises substantial control over an entity, or (2) owns or controls twenty-five percent (25%) or more of the ownership interests of an entity.

Ownership interests can mean any of the following: equity, stock, or voting rights; capital or profit interests; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company. For example, this could include an entity’s President, CFO, CEO, COO, general counsel, or other offices with similar functions.

The term company applicant is any individual who directly filed (or directed or controlled the filing of) the application to form the reporting company under state law.

A reporting company can have multiple beneficial owners, and FinCEN expects each reporting company to have at least one beneficial owner. Each reporting company must have at least one company applicant and at most two.

When must a reporting company file its report?

For reporting companies existing as of January 1, 2024, reports must be filed within one year, by January 1, 2025. Reporting companies formed after January 1, 2025, have 30 days after formation to file their reports.  FinCEN extended the deadline for reporting companies formed in 2024.  Reporting companies formed on or after January 1, 2024, and before January 1, 2025, have 90 days after formation to file their reports.

If there is any change in the information reported to FinCEN, the reporting company must file an updated report no later than 30 days after the date on which the change occurred. This includes reporting a change in beneficial owners, such as a new CEO or a sale that changes who meets the ownership interest threshold of 25%, and changes to a beneficial owner’s information, such as an address change.

How to file the report?

Starting on January 1, 2024, reports must be filed electronically using FinCEN’s secure filing system, available here. There is no filing fee.

What are the penalties for non-compliance with the CTA?

Failure to comply with the reporting requirements can result in civil and criminal penalties. These penalties can include civil penalties of up to $500 for each day that the violation continues, as well as  criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

How does FinCEN use the report once filed?

FinCEN will store reports in a database with security measures and only share this information with authorized users for purposes specified by law. This includes access by certain government agencies who request the information for purposes related to national security, intelligence, and law enforcement. FinCEN also allows limited access for financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company.

Most prudent businesses today carry at least certain standard insurance coverages to protect against risks and liabilities arising out of the conduct of their business. These threshold coverages usually consist of a Commercial General Liability (CGL) policy, coupled with a workers’ compensation and employer’s liability policy and a commercial automobile liability policy. However, the provision of technology-related products and services entails certain unique risks not faced by the “ordinary” business, and a business engaged in providing those products and services (and their customers) run the risk of a very unpleasant surprise when a claim is made and the business discovers that these standard insurance products may not provide coverage. As such, businesses that provide technology-related products and services – from software development and licensing to IT professional services and data hosting – should be aware of additional insurance products that are available to insure against the risks that are unique to their business operations.

Compliance with the CTA requires a business to determine whether it is a “reporting company”, and if so, what information it must disclose, including who qualifies as the beneficial owners of the business. If you need assistance in assessing your business’s responsibilities under the CTA, please contact Andrew Hazen (; 770-771-6818), Matthew Haan (; 770-771-6835), or Anne Marie Simoneaux (; 770-771-6811) or visit to learn more about how the attorneys at Friend, Hudak & Harris, LLP can help.

Andrew K. Hazen, About the Author: Andrew Hazen
Partner, Corporate practice leader
Andrew focuses his practice on corporate, transactional, and real estate matters. Andrew also serves as outside general counsel to a number of closely-held businesses in a variety of industries, including healthcare, long-term care and senior living, manufacturing and distribution, construction, agriculture, and commercial real estate. For more information about Andrew click here.
Matthew D. Haan, About the Author: Matthew Haan
Matthew brings his large law firm experience to FH2’s diverse and expanding corporate and litigation practices. Matthew concentrates his practice on business litigation, business transactions, labor and employment, corporate and real estate matters. For more information about Matthew click here.
Anne Marie About the Author: Anne Marie Simoneaux
Anne Marie represents clients in all aspects of general commercial litigation and business transactions. She regularly assists clients in the healthcare, insurance, manufacturing, commercial real estate, and telecommunications industries with contract drafting, asset purchases and divestitures, and other corporate and outside general counsel matters. For more information about Anne Marie click here.

Contact us for additional information:

Friend, Hudak & Harris, LLP
Attorneys at Law
Three Ravinia Drive, Suite 1700
Atlanta, Georgia 30346
Tel: 770.399.9500 | Fax: 770.395.0000

The FCC Establishes a Database Aimed at Reducing Robocalls: New Safe Harbor for Businesses, Additional Obligations for Telecom Providers

“Robocalling” – a term that broadly describes automatically-dialed calls, caller ID spoofing, recorded calls, and telemarketing – has become one of the biggest challenges for both callers and consumers.  According to robocall blocking service provider YouMail, 47.8 billion robocalls were placed in 2018.  Atlanta was once again the city in the U.S. receiving the most robocalls, with about 2.1 billion annually.  Rounding out the top five, were Dallas, New York, Los Angeles, and Chicago.

The Telephone Consumer Protection Act (“TCPA”) and its implementing rules restrict the making of telemarketing calls, the use of automatic telephone dialing systems, and the use of artificial or prerecorded voice messages, without the express consent of the dialed party.  A telemarketing call is also defined broadly to include text messages sent to wireless subscribers.  The requirements under the TCPA apply to all telemarketers, as well as all businesses that use automated phone equipment to interact with consumers, for example, to provide appointment reminders, account notifications, or other general business communications.

The North American Numbering Plan Administrator estimates that about 35 million numbers are disconnected and made available for reassignment to new customers each year.  This reassignment process means that a caller who previously obtained the express consent to call a given number may call that number without realizing that the number has been reassigned to a new party who has not given express consent to receive the call – which could lead to legal liability for the caller under the TCPA.

The Federal Communications Commission (“FCC”) has said that unwanted calls to reassigned numbers are a major problem.  Despite that there are existing tools available to address this issue, the FCC has determined that none are comprehensive.  Further, none appear to have adequately curbed the problem of making unwanted calls to reassigned numbers.

As a result, in December 2018, the FCC ordered the creation of a database that will enable callers to verify whether a telephone number has been reassigned before calling that number.  Those callers that rely on the reassigned numbers database will be provided a safe harbor from TCPA liability where the caller has prior express consent to make the call to the number that the database erroneously reported as not having been disconnected.  In addition, the FCC’s new rules will impose new reporting obligations on telecommunications service providers.

Businesses should look to use the reassigned numbers database because it will likely reduce both their potential liability for making unlawful calls to reassigned telephone numbers and operational costs as a result of targeted calling.  Telecommunications service providers should ensure that they are prepared to comply with the new recording and reporting obligations.

Permanent disconnection and aging. The FCC ordered the creation of a comprehensive database of numbers that have been permanently disconnected so businesses like banks and pharmacies that call customers frequently may avoid calling reassigned numbers.  Callers will be able to query the database before making a call to determine whether the number has been permanently disconnected.

“Permanent disconnection” means that a subscriber has permanently relinquished a number, or the provider has permanently reversed its assignment of the number to the subscriber so that the number is no longer associated with the subscriber for active service in the service provider’s records.  Permanent disconnection does not include instances where the phone number remains associated with the subscriber such as, for example, temporary disconnections for non-payment or when a consumer ports a number to another provider.

In the order, the FCC also adopted a minimum telephone number aging period of forty-five (45) days, establishing a minimum period of time a number must remain out of use before reassignment to a new customer.  Before this change, telecom providers could reassign telephone numbers to another consumer almost immediately.  The FCC reasoned that the more quickly a number is reassigned from one consumer to another, the less likely callers are to learn of the reassignment and the more likely a caller is to misdirect a call to the reassigned number.

Contents and use of the database.  The FCC will limit the contents of the database to the date of the most recent permanent disconnection for the affected telephone number.  The data made available to callers in response to a query will be limited to either “yes”, meaning the number has been reported as disconnected since the date the caller provides; “no”, meaning the number has not been reported as disconnected since the date the caller provides; or “no data”, meaning there is no information available for the number requested.

To ensure that the database is available to the widest number of users and accessible to any size caller, it will have the ability to process low volume queries, for example, via a website interface, or high-volume queries through a batch process or standardized application interface.  This means that a small dental office that texts their patients appointment reminders and a large outbound call center making thousands of calls each day can each use the database in a manner that works best for their respective operations. However, users of the database will be required to certify that they are using it solely to determine whether a number is permanently disconnected.

Safe harbor for users of the database.  Callers that use the database are granted a safe harbor from TCPA liability for calls made to numbers for which they had obtained prior express consent but, at the time of the call, relied on the database to determine that the number had not been reassigned.  The safe harbor shields the caller from liability if the database returned an inaccurate result.

Projected costs for users of the database.  Use of the database is voluntary, and those that choose to use it will be assessed a user fee.  In addition to the user fee, the FCC estimates the startup cost for callers to be one day of development and three days of testing for a single full-time engineer, resulting in about $2,160 for larger companies that would invest in the information technology resources to integrate with the reassigned numbers database.  Smaller companies are expected to have lower startup costs as a result of using an internet/web-based interface.

Service provider obligations and administration of the database. The order also requires all service providers that use the North American Numbering Plan to provide to the database administrator information about telephone number disconnections.  Those providers that do not receive their numbers directly from the North American Numbering Plan Administrator or the Pooling Administrator (for example, resellers and most VoIP providers) may delegate their reporting obligation to the service providers through which they obtain numbers.  The database administrator will be selected by the FCC through a competitive bidding process at a later time.

Similarly, toll free numbers, which are administered by the Toll Free Numbering Administrator, will also be included in the database.  The obligation to report the permanent disconnection status of toll free numbers will fall to the Toll Free Numbering Administrator.

Beginning 30 days after the rules are approved by the Office of Management and Budget, providers will be required to keep records of their permanent disconnections on a going-forward basis.   In addition, providers will be required to report their permanent disconnections to the database administrator on the 15th day of each month, with the exact start date to be announced by the FCC once the database is operational.   However, small providers (those providers with 100,000 or fewer domestic retail subscriber lines) will be granted a limited extension of six months from both the recordkeeping and reporting requirements.

While the timeframe for implementing the database and the foregoing changes is uncertain, this looks to be beneficial to all stakeholders once operational.

If you have any questions about how these recent developments may affect your liability under the TCPA or reporting obligations, please contact Joel Thomas at or (770) 399-9500.

Beyond the Non-Compete: Things to Consider when Hiring a Competitor’s Employees

When engineer Anthony Levandowski announced in January 2016 that he was leaving Google for Uber, his employer was not happy. Levandowski was not just any engineer. As the head of Google’s efforts to develop a self-driving car, he was a Silicon Valley superstar, and now he was taking his considerable talents to Google’s chief rival in the race to develop a truly autonomous automobile.

Google was not going to take the defection lying down. Not long after Levandowski departed, Google sued Uber seeking $1.85 billion in damages and an injunction that would severely limit the work Levandowski would be able to do for Uber. Although the case eventually settled (during trial) for just a fraction of what Google originally sought, the wreckage was widespread: Levandowski was left unemployed, Google received $250 million worth of Uber stock, and both parties owed their attorneys tens of millions of dollars in legal fees.

The remarkable thing about Levandowski’s case is that Google never alleged that Levandowski had breached a non-compete agreement. They couldn’t, because he never had one. Non-competes are completely unenforceable in California.

The Levandowski case serves as a reminder that an employee and his future employers are bound by a web of legal obligations even when the employee is otherwise free to leave his current employment and go to another employer of his choosing.

The Duty of Loyalty and Other Limits on the Privilege to Compete

Most businesses are familiar with the doctrine of at-will employment. It provides that, generally, an employer can terminate an employee at almost any time and for almost any reason. (There are notable exceptions, such as terminating for an illegal or discriminatory reason.) The principle goes both ways. Employees are generally free to leave for greener pastures wherever they can find them. On top of that is the “privilege to compete,” which allows a company to compete against others in the open market for scarce customers, resources, and even talented employees. These doctrines are reinforced by states’ longstanding public policies against non-compete agreements and other “restrictive covenants.” This animosity toward limiting competition often renders any attempt to contractually bind an employee from jumping ship substantially – or even completely – unenforceable. Together, these doctrines help create an economy where the competition among companies for good employees is just as stiff as the competition for good customers.

But even against that background, neither the at-will employment doctrine nor the privilege to compete are unlimited. Both are restricted in ways that create potential risks for employers and the talent they seek to recruit.

As an initial matter, all workers – even the rank and file – have a “duty of loyalty” to their employers. The duty of loyalty is not as restrictive as the “fiduciary duty” that binds officers, directors, and other essential personnel, but it has “teeth” nonetheless. At its core, the duty of loyalty means an employee cannot compete against her employer or otherwise actively work against her employer’s interests. In practice, this typically means that an employee can plan to compete against her employer, but she cannot in fact compete against her employer while she is still employed.

To illustrate: George works for an advertising agency, but he dreams of having his own agency one day. While he is still working for his current agency, can he form an LLC, rent office space, and print business cards in anticipation of the day he finally strikes out on his own? He can. But can he take his clients out to lunch to discreetly inform them of his plans and solicit their business for his future agency? He cannot. The former is merely planning to compete against his current employer. The latter is actually competing against his current employer, and that is forbidden by the duty of loyalty.

Hiring a Competitor’s Employees – “Wrongful Means” and Employee Raiding

In addition to the duty of loyalty, the law recognizes that a business has a legally-protectible interest in an existing relationship between it and its employee, even when the relationship is at will, and the law will punish a third party’s attempts to induce a breach of loyalty or wrongfully interfere with that relationship. As a result, these obligations create some risk for the prospective employer, who must take care not to contribute to an employee’s breach of his duty of loyalty or otherwise interfere with the current employer’s rights.

So what can you do to hire away employees from another business? In Georgia and many other states, a prospective employer (Employer B) will be protected from liability when recruiting from a competitor (Employer A) if the following conditions are met:

  • The relationship between the employee and Employer A concerns a matter involved in the competition between Employer A and Employer B;
  • Employer B does not use any “wrongful means” to recruit the employee;
  • Employer B’s actions don’t create or continue an “unlawful restraint of trade” (that is, they are not intended to help Employer B create a monopoly for its goods or services); and
  • Employer B’s purpose is at least in part to advance its own interest in competing with Employer A.

It’s the second prong – the use of “wrongful means” – that most commonly causes issues. What exactly are wrongful means? They are often described as actions that are wrong on their own, even outside the context of recruiting – such as using fraud or defamation. But cases involving such obviously wrongful means are not particularly common. The following scenario is both more common and less obvious.

Imagine that our adman George has decided he would rather not go out on his own after all. What he really wants to do is join a better agency, and his valuable book of business has landed him an offer with his current agency’s biggest rival. Of course, both George and the new agency expect George to bring his clients with him when he leaves. But George can’t serve those clients all on his own, and he would like to bring some additional talent with him to the new agency. So after putting in his two weeks’ notice – but before he actually leaves his employment with the company – he sets about recruiting some key members of his team to come with him and, with the new agency’s permission, extends formal offers of employment.

Is this allowed? Usually not. George is still an employee of the first agency, and by recruiting the first agency’s talent he is benefitting the new agency at the expense of his own employer. In short, George is violating his duty of loyalty to the first agency. But the new agency’s hands are not clean either. It has knowingly used George as a double agent to recruit talent from a competitor. This is the kind of “wrongful means” that the law forbids.

A special situation arises when one company “raids” another by hiring away a large portion of its employees at one time. As in a case where only one employee is hired, the central question is usually whether the hiring company used any wrongful means in its efforts to recruit. The problem in a case of mass hiring comes when the hiring party’s efforts are so successful that the mass defection leaves the competitor unable to function. In these cases, some courts have found that the crippling of the competitor is itself wrongful and therefore prevents the hiring company from claiming the protection of the privilege to compete.

It is often remarked that this is especially true if “other circumstances are present.” Unfortunately, few courts explain what those other circumstances may be, creating a zone of uncertainty for companies that aggressively recruit from their competitors. In the end, special care must be taken before recruiting a group of employees to leave a competitor en masse.

The Trade Secrets Trap

The special knowledge that makes a recruit highly desirable often includes special knowledge about his employer. For this reason, claims that a company used wrongful means to hire from a competitor are often accompanied by accusations that the competitor’s trade secrets have been stolen. These claims often directly implicate the hiring company as a co-conspirator. Google’s lawsuit against Uber, for example, turned largely on allegations that Uber used Levandowski to steal Google’s trade secrets.

A trade secret is generally defined as having four qualities: One, it must be information. Two, the information must derive economic value from the fact it is secret. Three, the information must not be generally known. And four, the information must be the subject of reasonable efforts to maintain its secrecy.

The subject of what is and is not a trade secret could never be adequately covered in a single article. But for the purposes of hiring from a competitor, one characteristic should always be remembered: Trade secrets may or may not be the subject of a confidentiality agreement. Trade secrets are protected by state and federal law, so the fact that a new hire is not bound by a confidentiality agreement with her former employer does not, by itself, mean she does not possess any trade secrets that could create liability for the new employer.

Furthermore, liability for the theft (or misappropriation) of trade secrets is not limited just to the individual who actually pilfered the information. It also extends to any person who acquires or uses the information knowing that it was wrongfully obtained in the first place – or even simply having reason to know that the source of the information (i.e., the new hire) had a duty to a third party (i.e., the former employer) to keep it secret. This principle creates some measure of risk when hiring an employee who may possess sensitive information.

Difficult problems arise when a departing employee does not actively “take” his former employer’s trade secrets but, rather, simply possesses his former employer’s trade secrets only in his memory. It’s fair to say, though, that the typical suit over trade secrets involves much more concrete claims. The jilted employer often alleges that the former employee left with copies of his former employer’s files. These days, it is not uncommon to read allegations that, prior to his departure, the employee downloaded valuable files to a thumb-drive, sent them as attachments to a personal email account, or even photographed files with a smart phone.

Not all files contain trade secrets, of course. Nevertheless, an employer should never encourage or facilitate a new hire’s removal of files from his former employer.


Non-compete agreements and other restrictive covenants are often a concern when hiring new employees, especially those with specialized skills and abilities. Even in the absence of a restrictive covenant, however, employees and their suitors are still bound by rules that arise solely from the law. Employers must be mindful of these non-contractual restrictions when recruiting potential employees.  If you have any questions about this article or need assistance in assessing your business’s rights with respect to a prospective employee or a departing employee, please contact Ben Byrd at or (770) 399-9500 to discuss further.

Inquire Before You Hire: Prospective Employees and Restrictive Covenant Agreements

You have finally found a prospective employee who meets all of your search criteria and is a superstar (or prospective superstar) in the field.  You want to move forward with the hiring process on an expedited basis.  You extend a generous offer, which is promptly accepted.  And then you discover, one way or another, that this individual has a restrictive covenant agreement (a “Covenant Agreement”) with a prior employer.  What should you do?  What if you don’t find out about the Covenant Agreement until after you have hired the individual?

Covenant Agreements are becoming ever more common and they come in many forms.  This article will familiarize you with Covenant Agreements generally and will provide you with guidance regarding what you can do to protect yourself from legal liability and business disruption.


A.  What is a Covenant Agreement? Let’s be clear about what we are talking about.  For purposes of this article, a Covenant Agreement is a contract between your (prospective) employee and a current or prior employer that restricts the activities of the employee after the employment relationship terminates.  The restrictions can take many forms and the terms vary significantly from one Covenant Agreement to another.

Covenant Agreements are often referred to as “non-competes” or NDAs (short for “non-disclosure agreement”) and some are indeed just that.  Non-competes include terms that restrict an employee from engaging in activities that compete with the prior employer.  NDAs restrict the use of the former employer’s confidential information and trade secrets.  In most cases, however, Covenant Agreements include a number of different restrictive covenants so, if a prospective employee tells you he or she has an NDA with a prior employer, do not assume the document is indeed “just” a non-disclosure agreement.

Indeed, the majority of Covenant Agreements include at least two and often several different post-employment restrictions on conduct, such as provisions restricting the employee from:

  • contacting customers, suppliers, and/or employees of the prior employer;
  • saying or otherwise communicating damaging or negative information about the prior employer;
  • using materials that the employee developed with the prior employer;
  • keeping information or documents acquired in connection with the prior employment; and
  • using information acquired in connection with the prior employment.

Also, Covenant Agreements are not necessarily separate, stand-alone agreements.  They may be included in the terms of another, broader agreement, such as an employment agreement or a separation agreement.  Covenant Agreements may also be embedded in equity and bonus award agreements, transaction agreements, and deferred compensation agreements.  In short:  when assessing whether a prospective new hire is bound by a Covenant Agreement—and, if so, what restrictions apply to the new hire—do not depend on the “label”; review the document itself.

B.  Why Do I Need to be Concerned? I’m Not a Party to the Covenant Agreement.  It is basic contract law that a party to a contract can pursue its remedies against the other party to the contract in the event the other party breaches the agreement.  Clearly, a former employee who breaches a Covenant Agreement is liable for whatever damages are imposed by law or contract.  But how can a Covenant Agreement impact a subsequent employer who isn’t a party to the Covenant Agreement?  The answer is:  it depends on a number of factors, but the following is a brief summary of the possible ways a Covenant Agreement can disrupt the business of—or even create legal liability for—the subsequent employer.

Injunctions Against the Employee.  Practically without exception, Covenant Agreements permit the former employer to seek an injunction.  An injunction is a court order preventing the former employee from engaging—either temporarily or permanently—in the conduct that the former employer alleges is a breach of the Covenant Agreement at issue.  For example, if the employee has allegedly breached the Covenant Agreement by working for his or her current employer, the injunction can bar the employee from continuing such employment.  If an employer is relying on the skills and contribution of that employee, an injunction can be very disruptive.

Legal Claims Against the Current Employer.  A former employer that is a party to a Covenant Agreement has many causes of action that it might allege against the current or future employers even though there is no contract between the two employers.  These include: tortious interference with a contractual relationship; intentional interference with business relations; inducement to breach; civil conspiracy; misappropriation of trade secrets and proprietary information; conversion; and unfair competition.

It is important to note that, in some instances a candidate’s behavior may be actionable even in the absence of any Covenant Agreement. In most jurisdictions, employees have a common law duty of loyalty (and often a fiduciary duty) to act in the best interest of their current employer, even after tendering a notice of resignation. Violation of this duty of loyalty can result in substantial damages against the employee and, to the extent a subsequent employer is found to have assisted the employee in breaching his duty of loyalty, there is potential exposure to the new employer for aiding and abetting the employee’s breach.

C.  What Can an Employer Do? Whether the hiring employer will be directly liable to the former employer is largely predicated on the hiring employer’s intent and good faith, and whether it actually benefitted from the new hire’s unlawful conduct. Being able to show the following can provide a powerful defense for the hiring employer against this liability:

  • The hiring employer took diligent steps to determine at the pre-hire stage whether the employee was subject to post-employment restrictions.
  • The hiring employer was advised by legal counsel that, by hiring the employee, it would not interfere with an existing contractual restriction.
  • The hiring employer instructed the new hire that he or she was not expected or permitted to (1) use or disclose any trade secrets or confidential information belonging to his or her former employer, (2) improperly divert business opportunities belonging to the former employer, or (3) engage in any other conduct that would breach his or her Covenant Agreement.
  • The hiring employer instituted internal protocols to ensure against the inadvertent use or disclosure of the former employer’s trade secrets or confidential information.
  • The hiring employer continued to monitor the new hire’s conduct to ensure continued compliance with any post-employment restrictions that the former employer imposed.
  • The hiring employer used due diligence to ensure that it did not benefit from the new hire’s use or disclosure of the former employer’s trade secrets or confidential information.


Ask the Candidate If He or She Is Subject to Any Covenant Agreements.  The first thing an employer should do is ask a prospective employee whether he or she is subject to any Covenant Agreement.  This should be thoroughly vetted well before a decision is made regarding hiring the individual.  If the employer engages in adequate due diligence before it hires a candidate who is subject to a Covenant Agreement and makes a reasonable hiring decision based upon such due diligence, it would be very difficult for the former employer to assert any of the causes of action indicated above against the new employer.  (This, however, would not allay the possibility that the candidate would be enjoined from working for the new employer, in whole or in part, temporarily or permanently.)

Keep in mind that, as a general rule, restrictions imposed by Covenant Agreements may extend for a period of two years after employment terminates and in certain cases even longer.  Therefore, you should inquire not only about a candidate’s current or immediately prior employer, but also about earlier employers. The take away here is that when you endeavor to determine whether a candidate is a party to a Covenant Agreement, be sure to ask the right questions and review all agreements between the candidate and its prior employers.

If the Answer is “No” – “I Don’t Have A Covenant Agreement” and Other Tall Tales.

Going back to the facts described in the first paragraph of the introduction above, let’s assume that you asked the prospective superstar-employee whether he or she is subject to a Covenant Agreement and he or she says, “no.”  That should not be the end of your inquiry for a number of reasons.  First, strange as it may seem, employees often forget that they have signed Covenant Agreements.  Second, if the Covenant Agreement is embedded in another agreement, they might not realize that they are subject to one.  Third, the employee may unilaterally decide that although he or she has a Covenant Agreement, employment with you would not breach it and that therefore not disclosing it to you would do no harm.  Fourth, the prospective employee may want the job you are offering badly enough or believe the risk of enforcement is low enough that he or she decides to not disclose the fact that he or she is a party to a Covenant Agreement with a prior employer.

If the candidate affirms that he or she is not subject to any Covenant Agreement and you decide to hire him or her, then, as a pre-requisite to employment, require him or her to sign a notarized statement verifying that he or she is not subject to any Covenant Agreement with any current or former employer and stating that this verification is a pre-condition to the hiring decision, and that if the foregoing proves to be false for any reason, he or she would be subject to immediate termination of employment and be solely liable for any costs and expenses you incur if any action is brought against you because of it.

If the Answer is “Yes.”

Ask for a copy of the Covenant Agreement and have it reviewed by legal counsel who is knowledgeable about Covenant Agreements and the law implicated by them.  Your legal counsel should provide you with an assessment of whether the Covenant Agreement is enforceable, along with a plain English translation of what the Covenant Agreement prohibits, including the time limits, geographic scope, and the precise activities prohibited if the Covenant Agreement is enforceable and enforced.  Be sure to give your attorney enough specific information about what activities the prospective employee would perform for your company, if hired by you, so your attorney can advise you as to whether the prospective employee would violate the Covenant Agreement by working for you.

If you and your attorney determine that a candidate would be in breach of a Covenant Agreement by working for you and that the former employer is likely to sue, you can avoid that liability completely by not hiring the individual.  However, the issues are most often not so black-and-white.  In this case, you would need to consult with your attorney to weigh various factors to arrive at the decision as to whether to hire the candidate, including, for example: (i) the risk (and potential cost) of litigation and the potential disruption to your business (including the risk that your new hire will be enjoined from working for you, either temporarily or permanently); (ii) the likelihood that the former employer will be successful in enforcing the Covenant Agreement and your business’s potential liability for money damages; and (iii) any steps you can take to minimize or avoid a claim that the new hire is violating the Covenant Agreement.


Because Covenant Agreements are so common these days, there is a high likelihood that any new hire will be subject to a Covenant Agreement.  Even if you have determined that the anticipated scope of duties the candidate will perform for your business isn’t likely to violate a Covenant Agreement, you should still implement policies—whether in your standard employee manuals, offer letters, and/or employment agreements—to demonstrate your expectation that your employees will comply with their obligations to prior employers, such as a prohibition on the unauthorized use or distribution of property, confidential information, or trade secrets of a third party.

However, if you and your legal counsel determine that a candidate is subject to an enforceable Covenant Agreement, and that the position for which the candidate is being considered might be construed as requiring the candidate to violate the terms of that Covenant Agreement, there are a number of things you can do to minimize the risk of litigation if you decide to proceed with hiring the individual.  Possibilities include: (i) if feasible, restructuring the position so that the duties and responsibilities do not run afoul of the Covenant Agreement (or at a minimum), placing the new hire in a temporary position that does not violate the Covenant Agreement for the duration of any contractual restriction period; (ii) asking the former employer to waive the restrictions or negotiate restrictions that both of you can live with; or (iii) structuring the new hire’s work to insulate him or her from departments or projects involving confidential information or clients for which the new hire might possess competitively valuable information belonging to his or her former employer.  Also, the hiring employer should consider whether it should leave itself an “out” by requiring the candidate to acknowledge and agree that if litigation is threatened or arises over any Covenant Agreement, it reserves the right to terminate the candidate or alter the candidate’s job requirements.

Lastly—and regardless of the steps you may have taken to avoid or minimize the risk that your new hire is violating a Covenant Agreement—there is always a risk that the prior employer will nonetheless suspect a violation or threaten legal action against you.  As such, there are actions you should take after hiring an employee who is subject to a Covenant Agreement if you receive a “cease and desist” letter or any other communication regarding the terms of the Covenant Agreement from the former employer.  Proper management of this situation can reduce, limit, or eliminate your potential liability in connection with an employee’s Covenant Agreement with a prior employer.  You should contact your attorney immediately, both to formulate a strategy for responding to the prior employer and to ensure that you are taking the proper internal steps to preserve evidence that may become important if the matter proceeds to litigation.

If you have any questions or would like additional guidance regarding restrictive covenant agreements or other employment law issues, please contact Suzanne Arpin at or (770) 399-9500.

THE SUPREME COURT’S EPIC DECISION: The Beginning of the End of Employee Class Actions?

Many employers require employees to sign arbitration agreements as a condition of their employment.  Under those agreements the employee gives up his/her right to sue in court over job-related issues such as wrongful termination, breach of contract, and discrimination, and agrees to pursue such legal claims against the employer through arbitration.  These agreements often go further to provide for individualized arbitration proceedings, which means that claims pertaining to different employees will be heard in separate arbitration hearings – thereby precluding employees from bringing collective or class actions regarding workplace claims.  The use of mandatory, pre-dispute arbitration agreements has increased significantly over the past two decades.  A 2017 survey by the Economic Policy Institute showed that approximately 60 million private-sector, nonunion employees in the United States are subject to mandatory arbitration in their employment agreements, and almost 25 million of those agreements include a class action waiver.

The issue of whether these class action waivers are enforceable has been a contentious issue.  Although the Federal Arbitration Act (“FAA” or “Arbitration Act”) generally requires courts to enforce arbitration agreements as written, the FAA contains a so-called “saving clause” that permits courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”  Employees have argued that the FAA’s “saving clause” nullifies the enforceability of an arbitration agreement if that agreement violates some other federal law.  Specifically, until the United States Supreme Court decision discussed below, federal courts disagreed whether arbitration agreements containing a class action waiver violate the National Labor Relations Act (“NLRA”), thus rendering them invalid and unenforceable.  On May 21, 2018, the Supreme Court resolved this issue, holding that agreements requiring employees to arbitrate claims on an individual basis are enforceable.  Here’s what you need to know.

Some Differences Between Arbitration and a Court Case

An arbitration differs from a court case in a number of ways, including:

  • An arbitration is not heard and decided by a judge or jury, but by a neutral and independent “arbitrator” agreed to by the parties, and who is paid by one or both sides to listen to the evidence and witnesses, and issue a decision, which is called an “award.”
  • The arbitration process generally limits the amount of information each side can get from the other, which oftentimes gives the employer an advantage because the employer is usually the one in possession of most of the documents and information relating to the employee’s case.
  • Arbitrations are less formal than court trials, which can make the process easier for all involved, especially employees who are not used to litigation.
  • Arbitration cases are generally heard and decided much more quickly than court cases, which can take several years from start to finish, and arbitration is usually less expensive.

How We Got Here

Until a few years ago, both courts and the National Labor Relations Board (the “NLRB”) seemed to be generally in agreement that arbitration agreements (including ones that required individualized proceedings) were to be enforced according to their terms.  However, in 2012 the NLRB ruled in D.R. Horton, Inc., 357 N.L.R.B. 2277 (2012), that arbitration agreements containing class action waivers violated Section 7 of the NLRA, which guarantees workers the rights to self-organize, to form labor organizations, to bargain collectively, and to “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  In its ruling, the NLRB found that agreements requiring employees to arbitrate their claims on an individual basis violated the NLRA, rendering these agreements invalid and unenforceable.

Since the NLRB’s decision, federal appellate courts have split on the issue.  Some circuit courts, including the Seventh and Ninth Circuits, agreed with the NLRB, while other circuit courts, including the Fifth Circuit, found such class action waivers to be enforceable and not in violation of the NLRA.

The Epic Systems Case

Against this background of conflicting decisions by various federal courts and the NLRB, on May 21, 2018, the United States Supreme Court held, in a 5-4 decision, that agreements requiring employees to arbitrate claims on an individual basis are enforceable.

The case, Epic Systems Corp. v. Lewis, 584 U.S. ____ (2018), consolidated three different cases on appeal from the Fifth, Seventh and Ninth Circuits.  In each of these cases, an employer and employee had entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties.  Nevertheless, the employee plaintiffs in each of these cases sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.  To avoid enforcement of the class action waivers under the FAA, the employees argued that, by requiring individualized proceedings, the arbitration agreements at issue violated Section 7 of the NLRA, which under the FAA’s saving clause rendered the arbitration agreements unenforceable.  The employer defendants, on the other hand, argued that the FAA protects agreements requiring arbitration from judicial interference, and that neither the FAA’s saving clause nor the NLRA demands a different conclusion.  A majority of the Supreme Court agreed with the employers.

The FAA’s Saving Clause Did Not Apply to the Employees’ Claims 

The FAA “requires courts ‘rigorously’ to ‘enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted.’”  Nonetheless, the Court noted that the FAA’s saving clause, by its terms, “allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.’”

The employee plaintiffs in Epic Systems argued that the FAA’s saving clause creates an exception for cases like theirs, where the arbitration agreement (arguably) violates some other federal law.  In its Horton decision the NLRB found that requiring employees to arbitrate their claims on an individual basis was a violation of the NLRA.  The employees in Epic Systems argued that the saving clause applied because the NLRA renders their class and collective action waivers illegal, and in their view, “illegality under the NLRA is a ‘ground’ that ‘exists at law … for the revocation’ of their arbitration agreements, at least to the extent those agreements prohibit class or collective action proceedings.”  The Court rejected this argument, holding that in permitting courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract . . . ”, the FAA’s use of “any contract” limits the saving clause only to generally applicable contract defenses, such as fraud, duress, or unconscionability, and not to defenses specific to arbitration contracts (such as the employees’ claims that arbitration agreements requiring individualized proceedings are unlawful under the NLRA).

 The NLRA Does Not Conflict with the FAA

But the employees were not done yet.  Following the NLRB’s decision in Horton, they argued that Congress nonetheless intended Section 7 of the NLRA to render employee class action waivers in arbitration agreements unlawful, even though such class action waivers would otherwise be enforceable under the FAA.  That is, in cases like theirs, the NLRA overrides the FAA.  The Court noted that when confronted with two Acts of Congress allegedly touching on the same topic, the Court must strive to give effect to both.  To prevail in this case, the employees must show a “clear and manifest” congressional intent to displace one Act with another.

After a lengthy and comprehensive analysis of Congress’ intent, the Court held that there is no conflict between the NLRA and the FAA.  The NLRA “secures to employees rights to organize unions and bargain collectively, but … says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”  Focusing specifically on the language of Section 7 of the NLRA, the Court found that “the term ‘other concerted activities’ should, like the terms that precede it, serve to protect things employees ‘just do’ for themselves in the course of exercising their right to free association in the workplace, rather than ‘the highly regulated, courtroom-bound ‘activities’ of class and joint litigation.’” (Emphasis added.)  Moreover, the Court noted that Congress has shown it knows exactly how to specify certain dispute resolution procedures, or to override the FAA; however, Congress has done nothing like that in the NLRA, which is further evidence that Section 7 does nothing to address the question of class and collective actions.

In short, the Court found that Congress intended Section 7 of the NLRA to grant employees certain rights to act together in the workplace – but did not intend to extend those rights to judicial or arbitral proceedings already governed by the FAA.  As such, the Court held that the NLRA does not “override” the FAA or render employee class action waivers in arbitration agreements illegal or unenforceable.  Justice Gorsuch concluded:

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written.  While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA – much less that it manifested a clear intention to displace the Arbitration Act.  Because we can easily read [the FAA and the NLRA] to work in harmony, that is where our duty lies.

What Does This Mean for Employers? – The Pros and Cons of Class-Action Waivers

An employer that does not already utilize mandatory arbitration agreements with class and collective action waivers should consider whether implementing this type of agreement makes sense for its business.  While the Epic Systems decision made it clear that mandatory arbitration agreements with class and collective action waivers are enforceable (at least in the context of federal law), employers still must weigh various factors to decide if such agreements are right for them.

  • From a cost standpoint, for most employers the ability to prevent class and collective actions has a lot of appeal.
    • For wage and hour claims, the purported class can be extensive, the time and cost to defend against such claims can be substantial, and if the employees are successful the employer is required to pay the employees’ reasonable attorneys’ fees.
    • And even if the underlying claims are not strong, employees may use the class or collective action procedure as a vehicle to increase costs and try to force settlement with the employer.
  • However, the cost of defending dozens of individual arbitrations, each likely based on the same theory, can also be substantial.
    • The Supreme Court has held that employees may not be required to pay “prohibitive” costs in pursuing their federal employment rights, which often means that the employer will bear most of the burden of the arbitration costs, such as the filing fees, administrative fees, and the arbitrator’s fee. The employer would be required to pay these fees for each individual claim filed by an employee covered by a class or collective action waiver.
    • In addition, under the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures, with the exception of a $200 capped filing fee, the employer is responsible for all costs associated with an arbitration arising from an employer-promulgated arbitration plan.
  • Employers should also consider the impact on employee morale of requiring arbitration agreements with class and collective action waivers. Many employee-side commentators have decried the Epic Systems decision as undermining employee rights.
  • It should be noted that employers may face some uncertainty concerning state statutory and common law contract interpretations that may invalidate the terms of arbitration agreements, despite Epic Systems.
    • For example, several states have recently enacted limits on arbitration agreements that relate to sexual harassment claims, and some state courts have imposed exacting contractual wording requirements before enforcing arbitration clauses that waive the right to proceed with a court action.
    • Because of the uncertainty regarding whether a nonfederal law can override the FAA, employers should consider back-up contractual jury trial waivers in their arbitration agreements, if the governing state law permits pre-litigation jury trial waivers.
  • It should also be noted that the Epic Systems decision does not preclude lawsuits challenging arbitration agreements on general contract grounds, such as fraud, duress, or unconscionability, so employers should continue to be diligent about the general enforceability of their arbitration agreements.
    • In particular, employers should ensure that their arbitration agreements provide for due process and are not subject to claims that the terms are unconscionable and therefore unenforceable.

If you have further questions regarding the topic of this article or need help implementing the right dispute resolution mechanism for your business, please contact Patrick Jones at or (770) 399-9500.

Should We Notify Our Insurance Company?

On March 28, 2018, a federal judge in Atlanta excused Fulton County’s insurance company from paying more than $6.5 million. Valuable insurance coverage was lost because the County failed to provide timely notice to its liability insurance company.

Insurance policies are contracts between the insurance company and the insured. Those contracts require the insured to take various actions after an accident. Two of the most important are to give the insurance company notice of an accident and to send any potentially covered lawsuit to the insurance company. Coverage may be lost if the insurance company has included language in the policy stating that a failure to provide notice will result in a forfeiture of coverage or that the notice provision is a condition precedent to coverage. Put more simply, late notice may excuse the insurance company from paying, as it did Fulton County’s insurance company.

The notice clauses enable insurance companies to promptly learn of the accident so they may investigate the circumstances, determine whether it is prudent to participate in negotiations, or, if negotiations are not successful, to ensure the lawsuit is properly defended. Courts recognize the importance of prompt notice and will enforce clearly stated consequences of late notice.

The insured’s duties and the consequences of the insured’s failure to give prompt notice depend on the nature of the coverage, the language of the policy, and the law of the state whose statutes and cases are used to construe the policy. Insurance policies may be personal or commercial, they may be “first party” or “third party.” They may be “occurrence” or “claims made.” They may be “primary” or “excess.” These variations are critical but are beyond the scope of this brief article.

Here, we focus on a few of the principles common to almost all insurance contracts. For example, liability policies require that notice of an occurrence (an event that could give rise to a claim) be given to the insurance company “immediately” or “promptly” or “as soon as practicable.” In addition, most policies require the insured to notify the insurance company if a claim is made or, if suit is brought, to forward the suit papers to the insurance company. A typical notice provision follows:

Duties In The Event Of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. To the extent possible, notice should include:

(1) How, when and where the “occurrence” or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3)  he nature and location of any injury or damage arising out of the “occurrence” or offense.

b. If a claim is made or “suit” is brought against any insured, you must:

(1)  Immediately record the specifics of the claim or “suit”’ and the date received; and

(2)  Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable.

As indicated by this language, policies generally impose two duties: (1) a duty to notify the insurance company of an incident, accident, occurrence, or claim; and (2) an independent duty to notify the insurance company of a lawsuit.

The duty to give notice of an incident, accident, occurrence, or claim arises when the insured has reason to know of the possibility of a claim, regardless of whether the insured believes that he or she is liable, or that the claim is valid. Under Georgia law, the duty to provide notice to an insurance company is triggered when an insured actually knew or should have known of a possibility that it might be held liable for the occurrence.

In determining if there is a possibility of a claim that should be reported to the insurance company, a prudent insured will consider, for example: whether the insured is aware a person is injured; whether the insured is aware the injuries require treatment; and whether the insured is aware of the extent of related damage to property such as a vehicle (suggesting the severity of the collision).

Even Short Delays Can Avoid Coverage
Under Georgia law, while the “as soon as practicable” language affords some leeway as to timing, courts applying Georgia law have held that short delays can nonetheless result in the loss of coverage. Where no valid excuse exists, the failure to give notice for a period as short as three months has been found to be unreasonable.

Late Notice May Result In Loss Of Coverage
If an insured unreasonably fails to give timely notice, the insurance company is not obligated to provide either a defense or coverage:

  • An insured’s own determination of its lack of liability is not an excuse. The insured may not justify failure to provide notice by claiming that it determined that it had no liability for the incident.
  • The insured’s duty to give notice arises upon actual knowledge of a claim; however, the insured’s duty may also arise in the absence of actual knowledge. The insurance company – and then a court – will look at all of the facts and circumstances to determine whether the insured had enough information that he or she “should have known” a claim was possible. For example, where insured heard that someone had fallen from a fire escape and that someone was observed taking photographs of the scene, it was unreasonable for insured to delay five months before giving notice.

Similarly, a failure to promptly forward suit papers may result in loss of coverage:

  • The failure of an insured to forward a complaint to an insurance company until 46 days after its receipt breached a provision of a policy requiring prompt forwarding of suit papers, and allowed the insurance company to avoid both of its obligations – to defend the suit and to pay for any resulting judgment.

The policy language is critical. Where notice to the insured is not a condition precedent to coverage, the insurance company may void coverage only if the insurance company is able to show that it was prejudiced by the late notice. On the other hand, where the policy language indicates timely notice is a condition precedent, Georgia cases hold that the insurance company  need not prove that it was prejudiced by the delay.

Some types of insurance have their own, specific rules. For motor vehicle insurance, an insurance company seeking to avoid coverage due to late notice bears the burden of showing both that the delay by the insured was unreasonable and that this unreasonable delay prejudiced the insurance company’s ability to defend the case.

Giving Notice to the Insurance Company
Insureds should carefully read the policy and strictly comply with the notice requirements of the policy, both as to whom notice should be sent and the manner in which it should be sent.

Who May Give Notice?
Usually, the insured gives notice of a claim or sends copies of a lawsuit directly to the insurance company, Georgia law does not require that notice come only from the insured. Anyone who follows the policy language may give notice, as long as reasonable and timely.

Indeed, with respect to motor vehicle insurance, Georgia statutes specifically provide that a copy of a complaint and summons may be sent by a third party to the insurance company or to the insurance company’s agent by certified mail or statutory overnight delivery within ten days of the filing of the complaint.

To Whom Should Notice Be Given?
It is always safest to notify the insurance company directly, at the place indicated in the policy.

An insured may be accustomed to working with an independent insurance agent for most of their “day-to-day” insurance-related dealings. However, an insured should be aware that giving notice to an independent agent likely does not constitute valid notice to the insurance company. Under Georgia law, independent insurance agents or brokers are generally considered the agent of the insured, not of the insurance company.

However, under limited circumstances, an independent insurance agent may be considered an agent of the insurance company, such that notice to the agent is considered notice to the insurance company itself. For example, an independent insurance agent may be considered an agent of the insurance company if the insured can prove that the insurance company granted the agent or broker authority to bind coverage on the insurance company’s behalf. Alternatively, if an insurance company holds out an independent agent as its agent and an insured justifiably relies on such representation, the independent agent will be considered the agent of the insurance company. The insured will bear the burden of proving that the independent insurance agent is an agent of the insurance company. Gathering and presenting this evidence is expensive and time-consuming but may help to save coverage.

Late Notice May Be Excused
Not every late notice results in a loss of coverage. There are some circumstances in which courts have come to the rescue of insureds when the insurance company has denied the claim because of “late notice.” The insured has the burden of showing justification for a delay in providing notice. Some examples from Georgia cases include:

  • Even though 19 months elapsed before the insured gave notice, the court properly let a jury determine whether the insured acted reasonably where the insured had no actual knowledge of an accident, there were no facts to show the insured should have known, and the insured notified the insurance company immediately when evidence of a claim came to its attention.
  • Even though the insured was aware of an accident, its late notice may be excused because no one appeared to be injured in the accident and there was no significant property damage.

Gathering and presenting evidence that the insured’s delay was excusable under the circumstances is expensive and time-consuming but presenting and proving the grounds for an excuse may prevent the insurance company from denying coverage.

Call Your Lawyer, Provide Notice To The Insurance Company, And Forward Suit Papers
Whenever the insured is aware of an occurrence or a potential claim, the insured must promptly review the language of the applicable policy. The insured should not speculate there is no liability. Neither should the insured speculate there is no coverage. The insured should give notice even if the insured is unsure if the policy provides coverage.

Similarly, the insured must not assume that things can be “worked out” with the other party without involving the insurance company. An insured must not fail to give notice just because it believes the it has no liability or that the claimant or some other party was at fault. The other party or the other party’s insurance company may not agree.

The rules are complex, and the inquiry is very fact-specific. As the Georgia Court of Appeals recently stated:

We recognize that our jurisprudence on the question of what constitutes sufficiently prompt notice under an insurance contract … is not easily harmonized. Indeed, some of our prior decisions are difficult to reconcile with each other, as is not uncommon in an area that calls for a fact-specific inquiry.

In other words, call an experienced lawyer.

Because the consequences of failing to comply with the terms of an insurance policy could be fatal to coverage, a person or a business who becomes aware of an occurrence, or who receives a claim, demand letter, or lawsuit, should seek legal counsel as soon as possible. Ask about the specific rules applicable to the kind of policy at issue, about the details of when, by whom, and to whom notice must be given, and about the law of the state whose law will be used to construe the policy. And if the insured has failed to give prompt notice of an occurrence or claim, or to forward suit papers, the insured must consult a lawyer immediately to see if the delay may be  excused so that the insured is not left facing liability without insurance coverage.

If we may be of assistance, contact Mike Reeves at or (770) 399-9500.

DAVID V. GOLIATH – Using Indemnification Clauses to Level the Contractual Playing Field

Not all parties to contracts are created equal. In fact, more often than not one party to a contract may have considerably greater bargaining power and financial resources than the other party. This can give the stronger party an incentive to misbehave.  So how can you protect yourself when you are the “David” in a David v. Goliath scenario? Consider using an indemnification[1] clause to help level the playing field.

Indemnification clauses can be among the most important provisions to include in contracts for several reasons.  First, the mere existence of an indemnification clause can help ensure that a party gets what it bargained for under a contract, by giving the other party a reason to “think twice” before breaching the agreement.  Second, in the event the other party does breach the agreement, a well-crafted indemnification clause can give the non-breaching party more leverage to resolve matters favorably, before trial.  Third, an indemnification clause can help the non-breaching party recover its legal expenses incurred in enforcing the contract, thus removing the most costly obstacle to a “David” standing up to a “Goliath”.

Illustration – The David v. Goliath Scenario. Assume David and Goliath enter into a contract where David will pay $50,000 upon Goliath’s delivery of widgets. But, when it comes time for Goliath to deliver the widgets, he refuses.  Goliath may have accepted a higher offer from someone else for the widgets because he knows that David has fewer resources than Goliath and is unlikely to sue.

Let’s look at David’s options. David would almost certainly be entitled to recover “contract damages” for Goliath’s breach – such as the difference in price David must pay to acquire substitute widgets from an alternate source. But actually winning and collecting those contract damages comes with its own significant costs.  If David were to sue Goliath for breach (assuming he could afford to) David must hire an attorney.  However, under American contract law principles, David will not be entitled to reimbursement for the attorneys’ fees that he incurs fighting Goliath.  This results in a very real likelihood that David’s costs to pursue a lawsuit against Goliath will be greater than the amount he may actually recover in damages. This means that David may end up “winning” the lawsuit, but lose money overall after factoring in legal costs.

In short, because the American contract law on damages does not generally reimburse plaintiffs for their attorneys’ fees in contract breach actions, plaintiffs like David face an economic disincentive to stand up for their rights. Conversely, breaching parties like Goliath can have a perverse incentive to breach, particularly if the other party is financially weaker. This is where an indemnification clause can help level the playing field.

I.  Anatomy of an Indemnification Clause.

Indemnification clauses can help address the shortcomings of American contract law on damages by shifting liability or expense from one party to the other.

Here is a simple indemnification clause from a two-party contract:

Indemnitor shall indemnify, hold harmless, and defend indemnitee, to the fullest extent, from and against all claims, demands, actions, suits, costs and expenses (including, without limitation, attorneys’ fees and costs), losses, damages, settlements, and judgments (each, a “Claim”), whether or not involving a third party claim, arising out of or relating to: (i) any breach of any representation or warranty of indemnitor in this Agreement; or (ii) any breach or violation of any covenant of indemnitor in this Agreement, in each case whether or not the Claim has merit.

The three basic components of an indemnification clause are (1) the Parties, (2) the Claims, and (3) the Trigger Events. Each is explained below.

  1. Parties. The effect of an indemnification clause is to shift certain expenses and legal responsibilities from one party, the “indemnitee” or benefitting party, to the contract’s other party, the “indemnitor” or obligated party.
  2. Claims. “Claims” are the things the indemnitee is protected from or against. Claims can be:
  • an allegation (such as a claim or demand asserted by the indemnitor or a third party);
  • a formal legal proceeding (such as an arbitration, lawsuit, settlement, or judgment); or
  • a monetary amount (such as a loss, liability, cost, or expense incurred by the indemnitee).

(While this article focuses on “Direct Claims”, meaning a Claim by one party to the contract directly against the other party, indemnification clauses can also be used to shift liability and expense associated with a Claim asserted against the indemnitee by a third party, known as a “Third-Party Claim”.)

  1. Trigger Events. Usually, an indemnification clause is limited only to those Claims that arise out of, or result from, certain enumerated occurrences or circumstances (the “Trigger Events”). For our simple indemnification clause above the Trigger Events are limited to breaches of the indemnitor’s representations, warranties, and covenants (i.e., the indemnitor’s promise to do something) in the contract. But there can be many other types of Trigger Events; for example, the indemnitor’s violation of laws, its products or services infringing the rights of others, its acts causing personal injury or property damage, etc.

II.  Indemnification for Direct Claims.

With an understanding of the components of an indemnification clause, now let’s reconsider how our illustration might play out if the contract between David and Goliath had contained our simple indemnification clause.

In this instance, David could still sue Goliath for his contract damages.  But now, David has a bigger, more powerful “stone in his sling”.  Specifically, because his lawsuit is a Claim of a specified Trigger Event (Goliath’s breach of his covenant/promise to deliver widgets as required by the contract), David can also make a claim for reimbursement of David’s attorneys’ fees in bringing the lawsuit. The fact that Goliath may now be saddled with having to pay David’s legal fees will likely influence David’s decision to enforce his contractual rights against Goliath.

III.       Effects of Indemnity on Indemnitor Breaching Party.

As we can see, having an indemnification clause for Direct Claims substantially changes the economic calculus in favor of the plaintiff. It has considerable effects on the defendant breaching party, as well.

  1. The Threat of Having to Pay for Two Sets of Lawyers. In a lawsuit to enforce a contract with an indemnification clause, the breaching indemnitor is faced with the possibility of ending up paying for two sets of attorneys—its own and the plaintiff/indemnitee’s. Adding an indemnification clause to the mix has a substantial economic and psychological effect on the indemnitor. While protracting and delaying litigation is a time-honored tradition for some defendants, the benefits of being stubborn is much less compelling when weighted against the potential of having to pay both sides attorney’s fees. This fact weighs more and more heavily on indemnitors as legal fees mount and litigation progresses.
  2. Encouraging Settlement and Dispute Resolution. The example above assumes that a lawsuit was filed and proceeds all the way to trial and judgment. However, the vast majority of lawsuits are concluded before judgment, either by settlement or dismissal. Having an indemnification clause can be beneficial to resolving a lawsuit early on and even before a lawsuit is filed because as the indemnitee’s attorneys’ fees rise, the typical benefit of delay and protraction to the indemnitor diminishes. This increases the likelihood of earlier and more reasonable settlement.
  3. The Indemnitor May “Think Twice” Before Breaching the Contract At All. Of course, David would probably be happiest if Goliath simply performed the contract and avoided a dispute entirely. The mere presence of a clause that could make Goliath responsible for David’s costs of enforcing the contract may give him ample economic incentive to play by the rules of the contract from the outset.

III.  Conclusion.

While the particular facts and circumstances of the parties should always be considered, in many circumstances including a properly-drafted indemnification clause can enhance the parties’ likelihood that they will receive what they bargained for under the contract.


If you have questions regarding indemnification clauses or need further guidance on how to structure your business relationships, contact Scott Harris at or (770-399-9500).

[1] As used in this article, the terms “indemnity” and “indemnification” include three slightly different legal obligations: indemnity (to reimburse for an incurred expense or cost), hold harmless (a release from liability), and defend (the agreement to defend against a legal claim).  The three are slightly different concepts, but their effect is the same. They shift liability or expense from one party to the other.

It’s the New Year: Have You Checked Your Marks Lately?

The start of a new year provides a time to reflect on past successes and lessons learned. It’s also a time to chart the course ahead to achieve your goals. One important goal for any business is to protect the uniqueness and “brand identity” that distinguishes it from others. And, there is no more valuable asset of brand identity than a company’s trademarks and service marks.

Like any business asset, trademarks and service marks must be used properly in order to maintain and enhance their value. Failure to do so can result in your trademarks and service marks losing their value and, eventually, allowing copycats to “steal” value from your business.

So, here are a few New Year’s tips to 1. ensure that you know how to properly use (and, thereby, legally strengthen) your trademarks and service marks, and 2. keep from weakening (or even losing) your trademarks and service marks.

I.  First, Some Basics:

What Is a Mark? What Is Its Purpose?

In short, a “trademark” is a word or symbol (or a combination of both) used to identify a business’s products to distinguish them from similar products offered by others.  Conversely, a “service mark” is used to identify services (rather than products) offered by a business to distinguish those services from similar services offered by others.  (Unless stated otherwise, the rest of this article uses the term “Mark” to include both trademarks and service marks.)

Marks help customers differentiate between products or services offered by one business and products or services offered by another.  Customers rely extensively on Marks when making purchasing decisions between different brands of the same product. They purchase one product instead of another, more often than not, based on perceptions of the respective quality and reputation associated with a specific brand (the Mark)—often without ever sampling the actual product or service. (Who opens a Coca-Cola beverage to taste it before buying it over a generic labeled store brand?) The ability of Marks to distinguish competing products or services and drive buying decisions is what makes them so valuable.  Such value is worthy of protection. And protection starts with proper usage.

What Do We Mean by “Proper Usage” of Marks?

Proper usage of Marks is all about clearly and consistently presenting the Mark in a way that the consumer easily recognizes that the Mark indicates a specific source (or brand) of products or services. The antithesis of this is when a Mark is used in such a way that it is perceived as merely a generic name for a product or service. Proper Mark usage indicates a specific source or brand. (Think: “Buy a BMW automobile”.)  Improper usage allows the Mark itself to be mistaken for the generic name of a category of products or services. (Bad: “Hand me a Kleenex”; “Make me a Xerox”.)  As customers come to associate your Mark with the specific quality and reputation unique to your brand, properly presenting a Mark preserves—and, over time, strengthens—the Mark’s ability to distinguish your business’s products and services from those of another company in the minds of customers.

II.  Do a “Proper Usage” Check-Up: Some Things to Look For.

A.  Present Your Mark as an Adjective – Not as a Noun or a Verb. You should always use your Mark as an adjective followed by a noun (the generic name of your products or services). Never use your Mark as a standalone noun or verb, even as a “shorthand” description of the products or services.  Failure to consistently present your Mark as a modifier to differentiate your company as the source of products or services leads consumers to think that your Mark is merely a generic name (whether as a noun or verb) for the type of products or services you provide. If that happens, your Mark may no longer be “distinctive”—meaning that customers no longer view it as a basis for distinguishing between your products and services and similar products and services of others. Once your Mark is no longer distinctive, it can lose the legal protections accorded to a trademark or service mark. This includes the right to exclude others from using your Mark.

Here are some examples of correct and incorrect uses of a Mark in a sentence.

Correct:   “Use BUZZ cloud data services to manage your data.” (“BUZZ” modifies cloud data services—good!)

Incorrect: “Use BUZZ to manage your data.” (“BUZZ” used as a shorthand noun—bad.)

Incorrect: “BUZZ your data management!” (“BUZZ” used as a verb—bad.)

TIP – One way to determine whether you are using your Mark properly as an adjective is to delete the Mark from the sentence in which it appears.  If the sentence still makes sense after deletion, that’s a good sign that the Mark was being used properly in the sentence.

EXCEPTION:  Sometimes a business uses the same term as both a Mark (a brand name for its products and services – an adjective) and as a name for the business itself (a noun).  (Think “BMW”, which is used both as the name of the company and as a brand name for the automobiles offered by that company.) When the business is merely using the term to refer to itself as a company or corporate entity, it is permissible to use the term as a standalone noun—but the business should nonetheless remain vigilant to follow the rules of proper Mark usage when it is using that term as a brand name for the business’s products and services (an adjective).

B.  Present Your Mark Consistently in Form and Format. Your Mark should always be presented consistently.  Consistent repetition of your Mark in the exact same form helps consumers recognize and remember it. This, in turn, strengthens consumers’ association of your Mark with the specific quality and reputation unique to your business. So:

  • Don’t vary the spelling or punctuation of your Mark; and
  • Avoid presenting your Mark in plural or possessive forms. (However, this does not apply if your Mark is actually plural (like “BUNCHES”) or a possessive (like “BOB’S”).)

C.  Make Your Mark Stand Out. Consider taking additional steps to make your Mark stand out as a unique identifier for your brand of products and services. For example, if your Mark is a word or a phrase (rather than a logo), differentiate the Mark visually from surrounding text.  Present your Mark in ALL CAPS or in a different color font.  Making your Mark stand out,  reinforces the word or phrase as a Mark instead of a generic reference.

D.  Use the Correct ®, TM, or SM Symbol and Use It Correctly.  Proper use of the correct ®, TM, or SM symbol is crucial to preserving rights in your Marks for several reasons.  It publicly reinforces that the word(s) or logo to which the symbol is affixed are being used as a Mark and not a generic name for goods or services, and it puts potential infringers on notice of your claim to rights in your Mark.  Furthermore, in some cases, it may eliminate certain defenses available to those infringing your Mark and affect the types of infringement damages you might recover for an infringement of your Mark.

Here are tips on how to determine which is the correct symbol to use with your Mark and how to use that symbol properly.

  • Use the ® symbol if your mark is registered with the USPTO in connection with the products and/or services on which the mark is being used in that particular instance.
  • Conversely, don’t use ®—and do use either the TM or SM symbol, as applicable—if you have not obtained a USPTO registration for your Mark or if you are not using the Mark, in that particular instance, with the particular products or services listed in your Mark’s USPTO registration.
    • Use the TM symbol when the Mark is being used in connection with products.
    • Use the SM symbol when the Mark is being used in connection with services.
  • Place the correct ®, TM, or SM symbol immediately following the Mark, not after the generic name of the product or service with which your Mark is associated. For example, for the Mark “BUZZ” registered with the USPTO for cloud data services, an example of appropriate usage would be “Use BUZZ®  cloud data services”—not “Use BUZZ cloud data services®”. (If there was no USPTO registration for “BUZZ” or if “BUZZ”, is not registered with respect to “cloud data services,” you would change the ® to a SM symbol.)

EXCEPTION: As noted, sometimes a business uses the same term as both a Mark and as a name for the business itself.  Trademark symbols should never be used where the business is merely referring to itself as a company or corporate entity (a noun), as opposed to a “brand name” for specific products or services (adjective).

ConclusionStart the new year off right by making sure your business is using and presenting its Marks properly. Appropriate presentation and use of your Marks will: strengthen customers’ association of your Mark with the particular products or services with which it is associated; help you protect your Mark against infringement; and increase the value of your business’s unique “brand identity.”

If you have questions regarding trademarks and service marks, including selection, proper usage, and protection of these valuable business assets, contact Mike Stewart at or (770) 399-9500 for more guidance.

Terms and Conditions May Not Apply – How to Make Sure Your Terms and Conditions Work for You

“Additional terms and conditions apply” is a phrase we have all heard from a voice-over on a late-night infomercial hawking vegetable juicers or subscriptions to a knife-of-the-month club. But just what are “terms and conditions” and how are they different from a normal contract? And what concern are they to businesses that occupy, shall we say, more reputable corners of the marketplace?

What are “terms and conditions”?

As an initial matter, every contract has “terms”. These are simply the various promises that the parties to a contract make to each other: WidgetCo shall provide Customer with 600 widgets. In return, Customer shall pay WidgetCo $1,000 per widget. These are both terms.

Terms can be conditional—if Customer pays within 30 days of delivery, WidgetCo will give Customer a 5% reduction off the quoted purchase price. But conditional terms are still terms and, legally, there is no meaningful distinction between terms and conditions. Like “cease and desist” or “will and testament”, “terms and conditions” is simply a stock phrase that has become a fossilized part of legal language.

As a practical matter, though, when we hear the phase “terms and conditions”, what is usually meant are contract terms that have two characteristics. First, they are boilerplate terms—that is, standardized terms that are ancillary to the “real” terms of the deal that have been hammered out between the two parties with respect to the transaction at hand (for example, quantity purchased, delivery dates and locations). Second, they are often contained in a document (often titled “Terms and Conditions”) that is separate from the primary “deal-specific” document (such as a purchase order or statement of work) that gives rise to a particular deal. Terms and conditions are often, but not always, dictated by the seller of the goods or services without negotiation. It is in this sense that we will use the phrase “terms and conditions” in this article.

Considerations in using separate “terms and conditions”:

It can be useful to structure a transaction so that there are separate terms and conditions, and it is a practice that is especially common in internet-based commerce. Nevertheless, if you choose to employ terms and conditions, there are several considerations you must account for. Otherwise, you may end up with a contract different from the one you thought you agreed to.

Do you have a meeting of the minds? The first challenge that terms and conditions present is that they have a funny way of never making it into the contract at all. Any lawyer can tell you that a commercial contract is a “meeting of the minds” – that is, an agreement – between the buyer and the seller. In short, terms that both parties agree to become a part of the contract. Those that haven’t been agreed to do not.

The legal burden is on the party seeking to enforce a term to prove that the term was agreed to by both parties to be part of their “deal”. And, generally, this requires proof that the other party (i) had notice of the additional terms and an opportunity to review them, and (ii) agreed to be bound by them.

A problem with separate terms and conditions is that one party may not be aware that they exist at all. (In fact, a cynic might conclude that one reason terms and conditions are so popular is they seem to allow one party to insert terms into a deal without bringing them to the other party’s attention.) But if one party isn’t aware of certain terms, that raises the possibility that there was no meeting of the minds as to those terms, and so they do not become a part of the parties’ contract.

  • Imagine, for example, WidgetCo sells widgets through its website, Within that website is a web page laying out the terms and conditions for purchases made through the website. However, a customer never has to visit that page to complete an order, nor is there a specific reference or link to the terms and conditions during the order process—so a customer can place an order without ever being exposed to the “other terms and conditions”. Instead, the website may contain just a general—and inconspicuous—statement that merely browsing or using the website binds the customer to the terms and conditions. This approach is often referred to as a “browse wrap” agreement. (The word “wrap” is an allusion to the earlier practice of selling software with terms and conditions included inside a box wrapped in shrink-wrap.)

In this situation, can we really say—or prove—the customer has knowingly agreed to those terms? Without something more, that is a very hard conclusion to reach, and courts usually agree. Browse wrap terms are often found to be unenforceable for the fundamental reason that they were never mutually agreed to—because the customer did not have adequate notice of the terms.

  • Now imagine WidgetCo uses a printed order form that contains the statement “WidgetCo’s standard Terms and Conditions apply”. This is better, because WidgetCo’s customer should at least be on notice that there are other terms out there that it needs to be aware of. But does WidgetCo’s customer really know the substance of the terms it’s agreeing to when it submits the order form? Can it find out what it’s agreeing to? If not, whose fault is that—WidgetCo’s or the customer’s? In this case, it would be WidgetCo’s fault—while WidgetCo has notified the customer that additional terms apply, it has not given the customer any opportunity to review those terms. As such, the customer cannot be said to have agreed to terms that it could not review.

To avoid these questions, the best practice would be for WidgetCo to include a copy of its separate terms and conditions with the primary contract document and to get some affirmative manifestation that the customer agrees to those terms, such as a signature on the terms and conditions document.

But that is not always possible. So, at a minimum, WidgetCo needs to include a provision in the main document that clearly and unambiguously

  • incorporates the additional terms into the parties’ agreement; and
  • provides clear direction on how the customer can find those terms to review them.

So long as the terms and condition of a contract have been made available for review by a party, the law will usually presume that the party read them and understood their contents—even if the party chose (for whatever reason) to not actually review the terms.

A useful provision could look something like this:

This transaction is subject to WidgetCo’s standard Terms and Conditions, last modified August 1, 2015. WidgetCo’s full Terms and Conditions are available to Customer on WidgetCo’s website at 

In an e-commerce context, the same thing can be accomplished by having the buyer/user click a box signaling that he or she agrees to the seller’s terms and conditions, with the actual terms and conditions being available for review via a conspicuous hyperlink. (This is commonly referred to as a “click wrap” agreement, as distinguished from browse wrap.)  Where the terms are available for review by clicking on a conspicuous hyperlink, courts again generally presume that the buyer/user has read them and understood their contents before checking the “I agree” box—even if the buyer/user later admits that they chose to not click on the hyperlink or to actually review the terms.

Can you prove what  terms and conditions the parties agreed to? At this point, we do know the customer has agreed to a set of terms and conditions. But, we still may not necessarily be able to prove what those terms and conditions are. That brings us to our next issue.

In this case, the terms and conditions are almost certainly for WidgetCo’s benefit, so it is likely WidgetCo that is going to want to assert the rights and protections they provide if the deal falls apart. That means the burden will be on WidgetCo to prove the content of the terms and conditions to a court. Experience has shown that that can be harder than it sounds.

Let’s assume WidgetCo’s customer has clearly and unambiguously signaled its consent to be bound by WidgetCo’s  terms and conditions that were in effect on the date their deal was struck. If the terms and conditions were reproduced in full on a document that the customer signed, it’s easy to prove what terms and conditions were agreed to.  But if he has signed a printed document containing a provision like the one in the section above, or he has checked a box on WidgetCo’s website showing his assent—i.e., in both cases, where the terms were made available to the customer through a hyperlink or web address—what now?  Especially if WidgetCo has since revised the terms and conditions found on its website?

Almost by their nature, terms and conditions change over time (a point we will discuss further below). More than once, a business has appeared in court ready to prove how their current terms and conditions appear on their website, only to be told that their current terms and conditions are irrelevant. What matters, of course, are the terms and conditions that were in place at the time this contract was formed with this customer. If the business has not maintained the entire history of its terms and conditions in a structured way—and many businesses do not—it may find itself unable to prove what earlier terms and conditions were in place on the date that this customer entered into the contract.

Therefore, if a business intends to rely on separate terms and conditions, it is essential that it maintain records of its various terms and conditions in such a way that it can prove the contents of the terms and conditions that every individual customer has actually agreed to. To do this will require the business to:

  1. Maintain all prior versions of its terms and conditions in a repository;
  2. Make sure that the repository uses a system that will show not only the version that was in effect on a given day, but also that the customer could have accessed them or did in fact access them (for example, the website containing the terms was not “down” or unavailable at the time; a record showing that the customer clicked the link or “checked the box” (if applicable)); and
  3. Make sure that the repository system is designed so that future employees will be able to testify with certainty about what terms and conditions were in effect on a given date. (Murphy’s Law dictates that all the employees from the time of the sale will be long gone, years later, when the terms actually become relevant to a dispute.)

Are the terms and condition “subject to change”? A common characteristic of standard terms-and-conditions forms is a provision that the terms and conditions themselves are subject to change, usually at the sole discretion of the party that drafted them and often without notice to the other party. The terms may then go on to say that any such change automatically becomes binding on the other party as soon as the change is made. These types of provisions would obviously be useful to the drafting party if they were enforceable. The problem is, they often aren’t.

Again, a contract is an agreement by two parties to a common set of promises. Imagine WidgetCo’s terms and conditions contain the following language:

All invoices shall be paid within 30 days. All invoices that remain unpaid after 30 days shall incur interest at the rate of 4 percent per annum.

If WidgetCo can retain the right to change any term at any time and in its sole discretion, what’s to stop WidgetCo from amending its terms and conditions to require payment within 14 days? Or 4 days for that matter? Why couldn’t it raise the interest rate to 12% and disavow any warranties at the same time? In fact, while it was at it, why couldn’t WidgetCo change its terms and conditions to say that a customer representative had to come to the home of WidgetCo’s president and mow her lawn every Sunday until the balance is paid?

These scenarios may seem absurd, but they illustrate the fundamental unfairness that a unilateral “subject-to-change at will” clause presents. The law recognizes this unfairness and so, generally, renders “subject-to-change at will” provisions unenforceable.  In some cases, courts have gone even further to find that the mere presence of a “subject-to-change at will” provision makes the entire contract unenforceable from the outset.

To make changes to your terms and conditions binding on the other party, you need to comply with the same fundamental requirements as were needed to form the initial contract. That generally means:

  1. Giving the customer actual notice of the new terms;
  2. Getting the customer’s consent to the new terms (which can be express or implied, depending on the circumstances); and
  3. Giving some new promise or performance—or giving up an existing right—in return for the customer’s agreement to make changes to the existing deal.

The last of these is probably the least intuitive for non-lawyers. That is because to be a legally enforceable contract, an agreement cannot be just a meeting of the minds. To be enforceable, an agreement also has to have “consideration” given by each party to the other.  Without new consideration, changes to terms and conditions will generally be found to be an unenforceable attempt to unilaterally modify the terms agreed to by the parties.

Consideration is a legal term of art that refers to the thing that each party agrees to, or gives up, as its part of the deal. For example, in a commercial transaction, the seller promises to give up goods or services, and the buyer gives up his money. These promises are consideration. When the terms of an agreement are changed, the customer’s agreement to proceed under the new, changed terms is usually the necessary consideration given on the part of the customer—but the seller must give something in return as well. It could be a promise to accept future orders from the customer (if the seller would otherwise have the right to refuse such orders), a relaxing of payment terms, or something else.   Depending on the facts and the type of business at hand, the possibilities are potentially limitless—so long as the seller gives something in exchange for the customer’s agreement to accept the changed terms.

In the end, terms and conditions are a fixture of modern commerce, especially online commerce, but they present issues that must be addressed before they can be effective. If you have any questions about your business’s terms and conditions, please contact Ben Byrd at or (770) 399-9500 to discuss further.