In a recent decision, a Georgia appellate panel held that an employee nonsolicitation covenant that limits what parties can do following the end of a business relationship must have an explicit geographic limitation to be enforceable under state law.
Quick Hits
- A panel of the Georgia Court of Appeals ruled that a restrictive covenant prohibiting former employees from soliciting or recruiting employees of their former employer was not enforceable without an explicit geographic limitation.
- The appellate court refused to modify the contract to make it enforceable or find that a geographic limitation was implied.
- The ruling could have significant implications for Georgia employers as it required an explicit description of a covenant’s geographic reach for it to be enforceable.
On June 23, 2023, a panel for the Georgia Court of Appeals found that a restrictive covenant that prohibited former employees from soliciting or recruiting employees of the former employer was not enforceable under Georgia’s Restrictive Covenants Act because it lacked an explicit geographic limitation and because the act does not authorize courts to read a limitation into such a covenant to make it enforceable.
At issue in the case, North American Senior Benefits, LLC v. Wimmer, was a restrictive covenant between Alisha and Ryan Wimmer and their former employer North American Senior Benefits, LLC (NASB), an independent insurance marketing organization. The covenant restricted the Wimmers, who after leaving NASB formed a competing business called Freedom & Faith, Inc., from soliciting or recruiting the employees of their former employer.
Georgia’s Restrictive Covenants Act makes contracts that restrict competition enforceable “so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities.” The act includes exceptions for two types of post-employment restrictive covenants: (1) restrictions not to solicit a former employer’s customers; and (2) restrictions to protect trade secrets.
In the 2-1 ruling by the panel, in which one judge concurred and one dissented, the court rejected the argument that a geographic limitation was implied where the restriction applied only to the employees of the former employer nationwide. The court observed that the state legislature had “not set out an exception for restriction on solicitation of former employees” and stated that it was not “within [its] purview to create one.”
Presiding Judge Christopher J. McFadden, with one judge concurring, applied statutory construction principles and ruled that the Restrictive Covenants Act must be read to require employee nonsolicitation covenants to have “a description of geographic area” to be enforceable. Because the employee nonsolicitation covenant at issue did not contain an explicit geographic limitation, as written, it prohibited the Wimmers from hiring or soliciting NASB employees around the world. The court stated that such a result would be “clearly unreasonable.”
The court further stated that it was “of no consequence that there are strong policy arguments for a different rule or that those policy arguments had been adopted in judicial decisions that preceded the Act.” Although Georgia’s Restrictive Covenants Act authorizes courts to exercise discretion to modify overbroad restrictive covenants to make them enforceable, the court declined to do so in this case, holding that the act does not permit courts to supply new terms where they are missing.
In a dissent, Judge Todd Markle argued that a geographic limitation was implied “[b]ecause the terms of the restrictive covenant are specific to whom the Wimmers may not solicit,” and therefore, “[a]ny further description of geographic limitation would be unnecessary.”
Next Steps
The ruling could have significant implications for Georgia employers as it required an employee nonsolicitation covenant that applied to employees after they left a business to have an explicit description of the covenant’s geographic reach. Still, the court did not elaborate on what sort of geographic limitation would be reasonable, noting only that some description of the geographic area is required. Georgia employers may want to consider reviewing their restrictive covenants and review their compliance with the state’s Restrictive Covenants Act.
Ogletree Deakins’ will continue to monitor developments and will provide updates on the Unfair Competition and Trade Secrets and Georgia blogs.
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