On May 11, 2011, Georgia passed the Restrictive Covenants Act, which made enforcing employee restrictive covenants far easier than it was under Georgia common law. In an odd twist, a law that Georgia intended to make it easier to enforce restrictive covenants has made it more difficult to enforce employee non-solicits. On June 13 2023, in North American Senior Benefits v. Wimmer, the Georgia Court of Appeals held that an employee non-solicit must include an express geographic restriction-a requirement that previously did not exist under Georgia's common law regime. Employers should revise any restrictive covenant agreement accordingly to avoid a challenge to the enforceability of an employee non-solicit.
Under Georgia's common law, the Georgia Court of Appeals squarely held that an employee non-solicit did not require a geographic or relationship-based restriction. And, even after the passage of the Restrictive Covenants Act, most employee non-solicits did not include a geographic restriction. Instead, agreements generally included a provision like the following:
During the term of Employee's employment and for a one-year period following Employee's separation from the Company, Employee shall not, directly or indirectly, solicit any employee of the Company to leave the Company's employment or to join a competitive organization.
Some agreements, in a nod to the Act, added a limitation that the employee non-solicit would be limited to colleagues with whom the employee had material contact. Most agreements did not incorporate any reference to a geographic limitation-beyond a potential implied limitation based on where the company's employees were located.
One year after Gallant, the court of appeals signaled that old Georgia law may not be the same as new Georgia law. Previously, under Georgia common law, the Court of Appeals issued a physical precedent only decision[1] where the majority opinion invalidated a customer-specific non-compete that did not include an express geographic limitation. The court of appeals reasoned that the Act required a "reference" to a geographic area limitation, and failing to include that limitation meant the restriction was void.
The decision drew a dissent from Judge Ray-now on the federal bench-who asserted that a customer-based non-compete met the statute's geographic requirement because the covenant was limited to customers with whom the employee worked, so the "lack of a geographic area restriction is of no consequence."
In another 2-1 decision, the court of appeals in North American Benefits expanded the geographic area requirement to employee non-solicits. The court of appeals pointed to the definition of "restrictive covenant" in the Act, which included an agreement to protect a business's interest in confidential information, customers, and employees. Because the Act classified an employee non-solicit as a "restrictive covenant," the employee non-solicit must be "reasonable in scope, time, and geographic limitation." The employee non-solicit did not contain a geographic area limitation, so it was unenforceable to the extent it restricted post-employment conduct.
The court of appeals also confirmed that the Act permits a court to "blue pencil" a covenant to strike out overbroad language, but it does not authorize a court to equitably reform a covenant by revising or inserting a restriction.
Key Takeaways
Georgia employers should revise their employee non-solicits to include an express geographic area limitation. Employee non-solicits without this limitation will be found unenforceable barring an intervening decision from the Georgia Supreme Court or rehearing at the Georgia Court of Appeals. On July 17, 2023, North American Senior Benefits filed a certiorari petition with the Georgia Supreme Court, so the court of appeals' decision may not be the last word here. But given the potential consequences if the decision stands, employers should be proactive and review their employee non-solicits and incorporate an express geographic area limitation.
Additionally, the decision serves as a reminder that restrictive covenants should be drafted in a manner that will allow a court to "blue pencil" the restriction into an enforceable form if it is found to be overbroad.
Footnote
1 In Georgia, decisions issued as "physical precedent only" are not binding precedent but are considered persuasive authority.
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