In the face of recent backlash against restrictive covenants across the country, a Georgia appeals court has ruled that non-solicitation provisions must contain a geographic restriction in order to be enforceable. North American Senior Benefits v. Wimmer, No. A23A0162 (June 13, 2023).
Background information on the standards for restrictive agreements in Georgia
In Georgia, restrictive agreements were governed by common law until 2011. Georgia common law was generally hostile to restrictive covenants, but was more permissive to crackdown restrictions such as employee non-solicitation provisions.
In 2011, the passage of the Restrictive Covenants Act (RCA) in Georgia made enforcing valid restrictive covenants easier than before. The RCA found that valid restrictive agreements serve a legitimate purpose, namely “to protect legitimate business interests and to create an environment” conducive to the location and retention of business entities in the state.
While the RCA facilitated the enforcement of valid agreements, it also limited the scope of restrictive agreements. The RCA requires that, in order to be enforceable, a contract provision that restricts competition must contain reasonable time, geographic, and scope restrictions on prohibited activities.
The RCA exempts non-solicitation provisions and restrictions on the use or disclosure of confidential information from this requirement. However, the law does not contain any information on the provisions on the non-solicitation of employees. As a result, it remained unclear whether the non-solicitation provisions also provided for time, geographic and scope limitations on prohibited activities, or whether those provisions would remain subject to the common law standard. This has now changed.
Court of Appeals introduces non-solicitation provisions for employees in RCA
In the Wimmer case, a Georgia appeals court filled out the RCA’s silence on the employee non-solicitation provisions by ruling that the employee non-solicitation provisions must have a geographic limitation in order to be enforceable. The court concluded that the non-solicitation provisions for workers clearly restrict competition and therefore need to be regulated by the RCA. While the RCA exempted the customer non-solicitation provisions, the Court of Appeals found that the failure to exempt the employee non-solicitation provisions was evidence that the Georgia General Assembly intended the RCA to cover the employee non-solicitation provisions.
The Court of Appeals also dismissed arguments by North American Senior Benefits (NASB) that the agreement implied a geographic limitation. The NASB argued that the restriction carried an implicit geographic restriction to the United States since it only employs staff in the United States. The Court of Appeal rejected that argument, saying that the clear meaning of the RCA suggests that while descriptions of geographic boundaries are “read leniently,” description of some form is required. Accordingly, a geographic limitation of an employee non-solicitation clause must be explicitly stated in order to avoid voiding the agreement.
takeaways
Employers operating in Georgia should review their current restrictive agreements to determine if non-solicitation provisions are subject to geographic restrictions. If these agreements do not include geographic restrictions, employers should consider amending the agreements to include such restrictions.
Jackson Lewis attorneys in the Restrictive Covenants, Trade Secrets and Unfair Competition Practice Group are available to assist in reviewing and amending current restrictive covenant agreements.
