Non-compete News: Georgia Court of Appeals Clarifies What Is an Appropriate Definition of Territory in a Non-Compete Under RCA |  FordHarrison

Last month, in American Plumbing Professionals, Inc. v. ServeStar, LLC, the Georgia Court of Appeals reversed a trial court’s finding that a non-compete clause was unenforceable and void because its jurisdiction was too broad. The non-competition clause at issue defined the geographic restriction as “the territory in which the employee performs services on behalf of [the employer] during the last twelve months of his or her employment” which extended “throughout all parts of the United States of America where [the employer] doing business.”

Based in part on case law prior to the passage of Georgia’s Restrictive Covenant Act (“RCA”) in May 2011, the lower court ruled that the non-competition clause “contained vague geographic restrictions and was therefore void and unenforceable.” The Court of Appeals first recognized that the RCA allows “enforcement of contracts that restrict competition” “so long as such restrictions are reasonable having regard to the time, geographic area, and scope of the prohibited activities.”

Regarding “geographical area,” the RCA specifically states that an area is considered reasonable if (a) it “encompasses the areas in which the employer does business at any time during the parties’ relationship, even if those the date of entry into the restrictive agreement is not known” and (b) “[t]The overall distance covered by the federal provisions is also reasonable.” The Court of Appeals also noted that the RCA provides further guidance regarding the wording required for geographic restrictions in non-compete provisions: “The phrase ‘the area in which the employee is Date of Termination’ or similar wording shall be deemed sufficient a description of the geographic areas if the individual or entity bound by the restriction can reasonably determine the maximum reasonable scope of the restriction at the time of termination.”

The former employer relied on statutes that existed before the RCA, and therefore the Court of Appeals found that statute inapplicable. It also distinguished RCA cases in which non-compete provisions were found void and unenforceable because they lacked conditions, i.e., they lacked territory entirely. The Court of Appeals interpreted the non-competition clause as required by the RCA, i.e., in favor of protecting an employer’s legitimate business interests to be consistent with the reasonable intentions and expectations of the parties, and held that the territorial limitation satisfied the requirements legal requirement because it “provides reasonable notice of the greatest reasonable level of restraint.” Accordingly, the Court of Appeals reversed the finding that the agreement was void and unenforceable and remanded the case to the lower court to determine whether the geographic scope was reasonable or otherwise enforceable.