The Supreme Court of Georgia has held that employee non-solicitation provisions do not need to contain an express geographic limitation to be enforceable. North American Senior Benefits v. Wimmer, No. S23G1146 (September 4, 2024). It also held that they must be reasonable in the light of the totality of the circumstances.
Background information on standards for restrictive covenants
In Georgia, all restrictive covenants were governed by common law until 2011. Georgia common law has generally been hostile to restrictive covenants, but has been favorable to crackdown restrictions, such as: B. Non-solicitation provisions for employees, more permissive.
Georgia's passage of the Restrictive Covenants Act (RCA) in 2011 made the enforcement of valid restrictive covenants easier than before. The legislature found that valid restrictive covenants serve a legitimate purpose of “protecting legitimate business interests and creating an environment” conducive to the location and retention of business enterprises in the state.
While the RCA made it easier to enforce valid covenants, it also limited the scope of restrictive covenants. The RCA requires that, to be enforceable, a contractual provision restricting competition must contain reasonable time, geographic, and scope limitations on prohibited activities. The RCA specifically 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 regarding the non-solicitation of employees. Thus, it remained unclear whether the provisions prohibiting non-solicitation of employees provided for time, geographical and scope limitations on prohibited activities or whether these provisions would remain subject to the common law standard.
Appeals Court upholds employee non-solicitation provisions in RCA
In 2023, a Georgia appeals court responded to the RCA's silence on employee non-solicitation provisions by holding that these provisions must contain an express geographic limitation to be enforceable. The court concluded that the employee non-solicitation provisions clearly restrict competition and therefore must be regulated by the RCA. Additionally, the RCA's failure to exempt the employee non-solicitation provisions was evidence that the Georgia General Assembly intended the RCA to cover those provisions.
Georgia Supreme Court Decision
The Georgia Supreme Court agreed with the Court of Appeals that the RCA governs employee non-solicitation provisions and therefore requires them to contain a geographic limitation. However, it noted that such restrictions may be express or implied.
The Supreme Court noted that the employee non-solicitation provision at issue could be considered to have an implied geographic scope tailored to the current residences and places of employment of the affected employees. Alternatively, the absence of a geographical area could indicate an intention to give the provision global or universal application.
The Supreme Court explained that in order to determine whether a non-solicitation clause is enforceable against employees, a court must assess whether the geographic scope of the provision is reasonable in light of the totality of the circumstances, including, but not limited to:
- The entire geographical area implicitly covered by the provision;
- The business interests justifying the restrictive covenant;
- The nature of the business in question; And
- The time and scope limitations of the contract.
The Supreme Court remanded the case to the trial court to conduct the necessary analysis.
Takeaways
Employers operating in Georgia should review their restrictive contractual agreements and consider updating or adding non-solicitation provisions for employees with applicable geographic restrictions.
Jackson Lewis attorneys in the Restrictive Covenants, Trade Secrets and Unfair Competition practice group are available to assist in reviewing and modifying restrictive covenants.
