Earlier this year, in Steuer v. Tomaras, et al., Georgia’s Statewide Business Court again refused to modify certain restrictive covenants that were missing a territory. Dr. Steuer, a former partner of the defendant doctors, sought to enforce restrictive covenants. The doctor defendants sought to declare the non-compete and non-solicit provisions contained in the agreements unenforceable.
The non-competition provision prohibited the doctors for a specific time period post-association from competing against Steuer within the Territory. The term “Territory” was defined as “a two (2) air mile radius around the Practice Location(s) as provided in Exhibit ‘C’.” Exhibit “C,” however, was left blank (i.e., it did not list any “Practice Locations” or addresses).
The court recognized that Georgia’s Restrictive Covenants Act (“RCA”) controlled the agreement in question and that, further, under the RCA, if a court found that a restrictive covenant was unenforceable as written, it may “blue pencil” a/k/a modify the agreement to render it enforceable. However, where a non-compete is completely missing a geographic restriction, Georgia courts have determined that a court may not “write in” an entirely missing territory.
Because the Steuer non-compete provision failed to identify any geographic area or territory – the entity that entered into the agreements with the doctor defendants had no employees and no physical office location – the court determined that it was “fatally flawed” and, thus, declined to use its blue pencil authority to give it new life.
Next, the court turned to the non-solicit of employees provision, which prohibited the doctor defendants from “soliciting, recruiting or inducing” any employee of the company to terminate his relationship with the company or work for any competitive business. Like the non-compete, it contained no territorial restriction.
As an initial matter, the court relied on the 2020 Georgia Court of Appeals Belt Power decision, on which we reported earlier, to determine that the non-solicit provision was governed by the RCA. Next, of the three types of restrictive covenants expressly covered by the RCA (non-compete, non-solicit of customers, non-disclosure of confidential information), the court likened the employee non-solicit to a non-compete provision. Thus, it needed to be reasonable in time, geographic area and scope of prohibited activity to be enforceable. Because it, too, had no geographic restriction at all, the court determined the employee non-solicit was void and unenforceable and, further, that it could not modify the employee non-solicit because it was missing a material term. Accordingly, the court enjoined the plaintiff company from attempting to enforce the covenants against the doctor defendants.
Bottom Line: Under the RCA, courts expressly are allowed to “modify” overbroad covenants to make them enforceable but a missing territory entirely is fatal to both non-compete and employee non-solicit provisions. Georgia employers would be wise to review their restrictive covenant agreements and, in particular, ensure that these provisions contain, among other things, a geographic restriction.
Jeff Mokotoff is Co-Chair of FordHarrison’s Non-Compete, Trade Secrets and Business Litigation practice group. If you have any questions regarding this decision, please feel free to contact Jeff at jmokotoff@fordharrison.com, or Leslie Hartnett, senior associate in our Atlanta office and member of our Non-Compete, Trade Secrets and Business Litigation practice group at lhartnett@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.