On May 11, 2011, Georgia passed the Restrictive Covenants Act, which made enforcing restrictive covenants far easier for employees than was the case under Georgia common law. In a strange twist, a law designed to make Georgia easier to enforce restrictive covenants has made enforcing employee non-solicitations more difficult. On June 13, 2023, the Georgia Court of Appeals ruled in North American Senior Benefits v. Employers should revise any restrictive contractual arrangements accordingly to avoid challenging the enforceability of unsolicited poaching by an employee.
Under Georgian common law, the Georgia Court of Appeals has ruled unequivocally that no geographic or relationship restriction is required for non-solicitation of an employee. And even after the Restrictive Covenants Act was passed, most employee non-solicitations did not contain a geographic restriction. Instead, agreements generally contained a provision like the following:
During the employee’s employment and for a period of one year after the employee’s separation from the company, the employee may not, directly or indirectly, solicit any employee of the company to leave the company’s employment or to join a competing organization.
In some agreements, as a nod to the law, a restriction was added that the employee’s poaching obligation would be limited to colleagues with whom the employee had significant contact. Most of the agreements contained no reference to a geographic restriction – apart from a possible implicit restriction based on the location of the company’s employees.
A year after Gallant, the Court of Appeal signaled that the old Georgian law may not be consistent with the new Georgian law. Earlier, the Court of Appeal issued a decision under Georgian common law that was merely a physical precedent[1] with the majority opinion overriding a custom non-compete clause that did not include an explicit geographic restriction. The Court of Appeal argued that the statute provided a “reference” to a geographic area restriction and that the absence of that restriction meant the restriction was invalid.
The decision met with opposition from Judge Ray, now in federal court, who contended that a customer-based non-compete clause satisfied the geographic requirement of the statute because the agreement was limited to clients with whom the employee worked, hence “the lack of a geographic Indication” missing The area restriction has no effect.”
In another 2-1 decision, the North American Benefits Court of Appeals extended the geographic area requirement to non-solicitation of employees. The appeals court referred to the definition of a “restrictive agreement” in the law, which included an agreement to protect a company’s interests in confidential information, customers and employees. Because the law classifies an employee’s non-solicitation as a “restrictive agreement,” the employee’s non-solicitation must be “reasonable in scope, time, and geographic limitation.” The ban on work contained no geographic restriction and was therefore unenforceable to the extent that it restricted post-employment conduct.
The Court of Appeals also confirmed that the law allows a court to “blue-pen” an agreement to remove overly broad language, but does not authorize a court to appropriately reform an agreement by introducing a revision or insert a restriction.
The central theses
Georgia employers should review their employee poaching policies to include an explicit geographic restriction. Failure to recruit employees without this limitation will be found unenforceable pending an interlocutory ruling by the Georgia Supreme Court or a rehearing by the Georgia Court of Appeals. On July 17, 2023, North American Senior Benefits filed a certiorari motion in the Georgia Supreme Court, so the appeals court’s decision may not be the final word here. However, given the potential consequences if the decision stands, employers should be proactive, reviewing poaching of their employees and implementing an explicit geographic limitation.
In addition, the decision serves as a reminder that restrictive agreements should be drafted in such a way that a court can bring the restriction into an enforceable form if it proves too broad.
