Executive Summary: Effective May 2011, Georgia’s Restrictive Covenants Act (RCA) represented a significant change to pre-existing Georgia law. Since then, however, very few courts have interpreted the RCA, leaving employers and practitioners alike with questions over how, and under what circumstances, restrictive covenants agreements may be used to protect an employer’s legitimate business interests.[1] One of the few decisions interpreting the statute, CSM Bakery Solutions, LLC v. Debus (N.D. Ga. 2017) underscores the reality that some employees in Georgia simply are immune from post-employment non-compete provisions – even where the covenants are reasonably tailored in duration, geographic proximity, and scope of precluded activity.
The plaintiff in the case, Kathleen Debus, was previously employed in the sales department by a Georgia-based bakery-supply manufacture, CSM Bakery Solutions, LLC (CSM). In 2016, she became a sales representative assigned to one of CSM’s biggest grocery clients, Jewel. During her employment, Debus signed an employment agreement where she agreed, for a period of one year following the termination of her employment, not to compete against CSM or solicit any of its clients with whom she had worked while at CSM. Specifically, she agreed that:
for a period of one (1) year after Termination, [she would] not, directly or indirectly, own, manage, operate, join, control, be employed by or with, or participate in any manner with a Competing Business anywhere in the Territory where doing so will require [her] to engage in Competitive Activities or provide Competitive Products or Services.
Four months after she became a sales representative, Debus left CSM to join Lawrence Foods Inc., a direct competitor of CSM. In her new position, Debus performed the same or similar duties that she performed for CSM – including some directly with Jewel.
CSM sued Debus and Lawrence Foods seeking a preliminary injunction to enforce the restrictive covenants contained in Debus’ employment agreement. Debus responded by arguing that her employment did not fit within the scope of the RCA. As a consequence, she claimed, the restrictive covenants contained in the agreement were unenforceable.
In its opinion, the court first explained that non-compete provisions in Georgia are only enforceable if they are reasonable in duration, geographic proximity, and scope of activities precluded. The court went on to explain, however, that even if a non-compete is reasonable in those three respects, it is not enforceable if it does not meet the threshold question of whether the employee falls within the scope of the statute in the first place.
Specifically, the court explained that under the RCA a former employer cannot enforce an agreement that restricts competition by any employee who did not, in the course of his or her employment with the former employer:
- Customarily and regularly solicit for the employer customers or prospective customers;
- Customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others;
- Perform the following duties:
- Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
- Customarily and regularly direct the work of two or more other employees; and
- Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or
4. Perform the duties of a key employee or of a professional.
Analyzing the statutory language, the court found Debus’ employment with CSM did not meet any of the exceptions set forth above as follows:
- First, Debus did not regularly and customarily solicit customers or prospective customers for CSM. Although she held the position of a sales representative, the court found Debus’ job title alone was irrelevant to the inquiry. Instead, it found significant the fact that CSM could only adduce six emails (over her five years of employment with the company) as evidence of her solicitation efforts with customers, which was insufficient to establish that her position qualified for the first exception;
- Second, Debus was not customarily engaged in sales with CSM. Although she participated in sales meetings and bakery manager training meetings to facilitate the ongoing relationship between CSM and Jewel, the evidence at trial showed that, in actuality, Debus’ superior was responsible for the transaction with the customer. Significantly, the court also noted that CSM had not presented any evidence that it would have expected to see if Debus was actually engaged in a sales-exception qualifying role (including sales records, commission sheets, or other documents);
- Third, Debus did not perform the duties required by the third exception. The court found that she did not have the primary duty of “managing the enterprise” because even at her highest position, Debus still reported to two supervisors who managed her work. It also found she did not “customarily and regularly” manage two or more employees; and
- Forth, Debus failed to qualify as a key employee. Although Debus obtained a high level of notoriety, reputation, and public persona as CSM’s representative for Jewel, the court found that her status within the company – a relatively low-ranking employee in an international business with thousands of employees – prohibited her from being “key.”
The court also briefly addressed the non-solicitation of customers provision contained in Debus’ employment agreement, which prohibited her from soliciting “for the purpose of diverting, taking away or disrupting, or of attempting to disrupt any of CSM’s prospective clients or clients.” The court found Debus had not violated the provision despite her post-CSM contact with Jewel. The evidence at trial showed CSM lost most of Jewel’s business prior to Debus leaving (for reasons unrelated to Debus) and the court reasoned that it would be difficult for Debus to solicit a client CSM did not possess at the time she left employment.
Accordingly, the court granted Debus’ motion to dissolve the preliminary injunction against her.
Bottom Line
Although there is relatively little case law on Georgia’s Restrictive Covenants Act, CSM Bakery Solutions makes clear that Georgia courts still cautiously analyze and construe the applicability of post-employment restrictive covenants. In light of this case, practitioners should continue to carefully draft restrictive covenants agreements and prudently discuss them with their clients. Likewise, employers should judiciously evaluate whether their employees – as a threshold matter – meet one of the four exceptions listed above to ensure that otherwise reasonable restrictive covenants are enforceable against them.
Jeff Mokotoff is Co-Chair of FordHarrison’s Non-Compete, Trade Secrets and Business Litigation practice group. David Anderson is a member of the Non-Compete, Trade Secrets and Business Litigation practice group. If you have any questions regarding this decision or other issues impacting the enforceability of employment-related restrictive covenants, please feel free to contact Jeff at jmokotoff@fordharrison.com or David at danderson@fordharrison.com. You may also contact any member of the practice group or the FordHarrison attorney with whom you usually work.