Georgia’s Restrictive Covenants Act (the “RCA”) became effective in May 2011, but it took nearly six years before a court published a decision interpreting the statute in the context of a non-competition provision (See our previous legal alert regarding the first published decision). Therefore, companies deciding whether to use or enforce a non-compete agreement have little guidance regarding how courts will interpret such agreements under the law.
In Carpetcare Multiservices, LLC v. Carle, the Georgia Court of Appeals provided additional insight into how a Georgia court will interpret the RCA in the non-compete context. In that case, the court determined the company’s non-compete was unenforceable against a former independent contractor because the agreement was missing a key term required by the RCA – a geographic term. In so doing, the court distinguished between a true non-compete and a non-solicitation of customers provision.
Here are the basic facts: Mr. Carle was an independent contractor who performed carpet resurfacing work for Carpetcare at several apartment complexes. When his independent contractual relationship ended, he began working at some of the same complexes for a competitor of Carpetcare. Carpetcare sued to enforce the following provision: “[Carle] agrees that . . . for a period of one year after [Carle’s] last day worked for [Carpetcare] . . . [Carle] will not provide any service identified herein to any customer with who [Carle] had any contact during the term of his employment with [Carpetcare].”
In determining that the non-compete was unenforceable because it was missing a territory, the court first distinguished between a non-compete and a non-solicit of customers under the RCA. Pursuant to OCGA § 13-8-53(a),“[e]nforcement of contracts that restrict competition during the term of a restrictive covenant, so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities, shall be permitted.” However, regarding non-solicitation covenants, “[n]o express reference to geographic area or the types of products or services considered to be competitive shall be required in order for the restraint to be enforceable.” OCGA § 13-8-53(b). Here, because the provision prohibited Carle not only from soliciting those customers with whom he had contact but also from “provid[ing] any service” to those customers, the court determined that the agreement was a non-compete provision.
Because it was a non-compete provision, the statute required that it have some identifiable territory. Quoting OCGA §13-8-53(c)(2), the court noted that “the phrase ‘the territory where the employee is working at the time of termination’ or similar language shall be considered sufficient as a description of geographic areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination.’”
The court then focused on the use of “geographic restriction” in the non-compete portion of the RCA and the lack of that term in the non-solicit of customers provision as further rationale for requiring some language defining the territory. “OCGA § 13-8-53(a) clearly provides that non-compete covenants are permitted “so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities[.]” As shown above, this same geographic restriction was excluded from OCGA § 13-8-53(b) pertaining to non-solicitation agreements.” The court concluded: “Because the non-compete covenant did not contain any reference to a geographic area limitation, it failed to comply with OCGA § 13-8-53(a), and, thus, the trial court correctly determined that it was void and unenforceable.”
Employers’ Bottom Line:
Employers necessarily use non-compete and non-solicitation of customer agreements to protect their important business interests, but Georgia courts historically have been sticklers when it comes to how each of the provisions are drafted. Having all non-compete agreements drafted and reviewed by employment counsel can ensure the company is adequately protecting its valuable assets.
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 Kristina Griffin at kgriffin@fordharrison.com. You may also contact any member of the practice group or the FordHarrison attorney with whom you usually work.