On September 6, 2023, the Georgia Supreme Court reiterated that Georgia courts must first determine whether a restrictive covenant is enforceable under Georgia law before applying a foreign choice of law provision.
In Motorsports of Conyers, LLC v. Burbach, the Supreme Court of Georgia held that before a Georgia court can enforce a restrictive covenant in a contract that provides for the application of foreign law, the Georgia court must first find that the restrictive agreement is “appropriate”. under the GRCA. The Supreme Court of Georgia further stated that if a restrictive covenant is unreasonable under Georgia's Restrictive Covenant Act (GRCA), it is a violation of Georgia's public policy and therefore cannot be enforced based on the foreign choice of law provision.
In Motorsports of Conyers, the trial court applied a Florida choice of law clause to govern the employment contracts at issue without first determining whether the restrictive covenants in the contracts complied with the GRCA. The Georgia Court of Appeals reversed, holding that application of the GRCA is the first step in analyzing whether the public policy exception overrides the parties' choice of foreign law. The Georgia Supreme Court affirmed this reversal, finding that the trial court had not applied the proper framework in determining the enforceability of the restrictive covenants. In clarifying the framework, the Supreme Court of Georgia noted that while the GRCA had provided a more flexible and permissive approach to the application of foreign law to restrictive covenants in Georgia than previous adjudicatory statutes predating the GRCA, Georgia law remained the “touchstone” be any restrictive contract analysis.
In short, if a Georgia court finds that a restrictive covenant is appropriate under the GRCA, it “may consider the choice of law clause and apply foreign law to determine whether to enforce it.” . “However, if a Georgia court finds that a restrictive covenant under the GRCA is unreasonable (in scope, duration, or geographic scope), the court “may not apply foreign law to enforce it.” Instead, the contract would be governed by Georgia law, and the court would therefore apply Georgia law, including the blue penciling provision of the GRCA, which could allow partial enforcement of the restrictive covenant.
The GRCA's blue penciling provision allows Georgia courts some discretion to modify a restrictive covenant to make it reasonable (and enforceable). However, as noted, courts have the discretion to “restrict” (restrict/sever) restrictive covenants in order to enforce them. In accordance with Georgia law, a court may not add certain provisions, including a geographic restriction, to a document, in which this essential term is missing. On this particular issue, the Court was not persuaded that, given the GRCA's language, a court should provide “adequate protection for all legitimate business interests in favor of the reasonable protection of all legitimate business interests established by the person seeking enforcement.” “, but they were not convinced that a court could simply choose to waive unreasonable restrictive covenants, with Blaustift leaving open questions about the extent of a trial court's discretion to decide whether to postpone a restrictive covenant to another day shall be.
The Supreme Court of Georgia reversed the trial court's decision and remanded the case to the trial court to apply the formulated framework.
Employers should consider revising restrictive covenants that apply to Georgian employees who do not meet the requirements under Georgian law, even if the restrictive covenant provides for a foreign choice of law.
