In a recent decision, a Georgia appellate panel ruled that an employee non-solicitation agreement that limits the parties’ options after a relationship ends must have an express geographic limitation to be enforceable under state law.
- A panel of the Georgia Court of Appeals ruled that a restrictive covenant prohibiting former employees from soliciting or soliciting employees of their former employer was unenforceable without an express geographic restriction.
- The appeals court declined to modify the contract to make it enforceable or to find that a geographic limitation was implied.
- The ruling could have a significant impact on Georgia employers because an explicit description of the geographic scope of an agreement is required for it to be enforceable.
On June 23, 2023, a panel of the Georgia Court of Appeals found that a restrictive covenant that prohibited former employees from soliciting or soliciting the former employer’s employees was unenforceable under Georgia’s Restrictive Covenants Act because it lacked an explicit geographic location restriction and because the law does not authorize courts to interpret a restriction into such an agreement in order to make it enforceable.
The case, North American Senior Benefits, LLC v. Wimmer, involved a restrictive covenant between Alisha and Ryan Wimmer and their former employer, North American Senior Benefits, LLC (NASB), an independent insurance marketing organization. The agreement prevented the Wimmers, who founded a rival company called Freedom & Faith, Inc. after leaving NASB, from soliciting or recruiting employees of their former employer.
Georgia’s Restrictive Covenants Act makes contracts restricting competition enforceable “so long as such restrictions are reasonable in time, geography, and the scope of the prohibited activities.” The law provides exceptions for two types of restrictive post-employment covenants: (1) restrictions not to solicit clients of a former employer; and (2) restrictions on protecting trade secrets.
In the panel’s 2-1 decision, with one judge concurring and one judge dissenting, the court rejected the argument that a geographic limitation was implied if the limitation applied only to the former employer’s employees throughout the country. The court noted that the state legislature “did not establish an exception for the restriction on the recruitment of former employees” and stated that this was not “within scope.” [its] jurisdiction to create one.”
Presiding Judge Christopher J. McFadden, with one judge’s approval, applied statutory construction principles and ruled that the Restrictive Covenants Act must be interpreted to require that employee non-solicitation agreements contain “a description of the geographic area” to be enforceable. Because the employee non-solicitation agreement at issue did not contain an explicit geographic restriction as written, it prohibited the Wimmers from hiring or soliciting NASB employees anywhere in the world. The court said such a result was “clearly unreasonable.”
The court further stated that there is “no consequence that there are strong policy arguments for a different regulation or that those policy arguments were incorporated into court decisions that preceded the law.” Although Georgia’s Restrictive Covenants Act gives courts the ability admits the discretion to modify overly broad restrictive covenants to make them enforceable, the court in this case refused to do so on the grounds that the law does not allow courts to introduce new conditions in the absence of them.
In a dissent, Justice Todd Markle argued that a geographic limitation was implied “[b]because the terms of the restrictive agreement target precisely who the Wimmers are not allowed to approach,” and therefore “[a]A further description of the geographical limitation would be unnecessary.”
The ruling could have a significant impact on Georgia employers by requiring that an employee non-solicitation agreement that applies to employees after they leave a company must have an explicit description of the agreement’s geographic scope. However, the court did not elaborate on what geographical limitation would be appropriate, only pointing out that a description of the geographical area was required. Georgia employers may want to consider reviewing their restrictive covenants and their compliance with the state’s Restrictive Covenants Act.
Ogletree Deakins will continue to monitor developments and provide updates on the Unfair Competition, Trade Secrets and Georgia blogs.
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