Shifting Tides with Restrictive Covenants: Georgia Appellate Court Voids Non-Solicitation Covenant Lacking Geographic Limit

Restrictive covenants have been coming increasingly under fire in recent times by lawmakers and federal administrative agencies, and even courts. Unlike non-compete agreements, other forms of restrictive covenants, including non-solicitation restrictions, have generally drawn less attention.  A recent Georgia appellate opinion, however, held that a non-solicitation-of-employees covenant, lacking an express geographic limitation, did not comply with the requirements of the Georgia Restrictive Covenants Act.

The case, North American Senior Benefits, LLC v. Wimmer, involved Alisha and Ryan Wimmer, who were former insurance agents employed by North American Senior Benefits, LLC (NASB). The non-solicitation covenant in question prohibited the Wimmers from soliciting NASB’s employees during their employment and for two years after their employment ended. The Wimmers later terminated their contracts with NASB, and, at some point, formed another entity, which operated in the same industry as NASB. NASB filed suit against the Wimmers and the new entity. The Wimmers sought declaration that the non-solicitation-of-employees restrictive covenant was invalid and unenforceable. 

The Georgia State-wide Business Court held that the non-solicitation-of-employees covenant was void and unenforceable because it lacked an explicit geographic limitation, as required under the Act, and blue-penciling only permits courts to narrow or sever impermissible language or terms—not add a material term to the contract. The appellate court affirmed the decision.

Georgia’s Restrictive Covenants Act

Under the Act, contracts that restrict competition during the term of a restrictive covenant can be enforced, provided the restrictions are “reasonable in time, geographic area, and scope of prohibited activities.” But “[a]ny restrictive covenant not in compliance with the provisions of this article is unlawful and is void and unenforceable” unless it can be cured under the blue-pencil provisions.

Geographic Limitation and Exceptions

Under the Act, restrictive covenants that operate after the end of the parties’ relationship generally must contain a geographic limitation. The Act further sets out two exceptions to the geographic limitation requirement:

• • Restrictions on efforts to solicit a former employer’s customers
  • Restrictions to protect trade secrets

But those exceptions did not apply in the Wimmer case because the non-solicitation restriction at issue focused on the solicitation of employees—not solicitation of customers or the protection of trade secrets. The non-solicitation covenant thus required a geographic restriction, the appellate court held.

The Georgia Appellate Court’s Decision

The appellate court held that the non-solicitation-of-employees restrictive covenant was unenforceable as to the Wimmers’ conduct after the termination of their contracts. The restrictive covenant specified its duration and the scope of prohibited activities, but it did not specify the geographic area covered. The appellate court reasoned that the Act requires restrictive covenants, even those governing employee non-solicitation provisions, to include a specific limitation on the geographic scope of the restriction. Because the provision in question did not contain any reference to a geographic limitation, it failed to comply with the Act and was thus deemed void and unenforceable.

Further, the appellate court clarified that blue-penciling did not allow the court to add a geographic limitation to bring the restrictive covenant into compliance. The appellate court reasoned that its authority to “modify” a restrictive covenant does not extend to adding material terms, but only to limit a restriction to render it reasonable.  

Take-Aways for Employers

The Wimmer decision is important for businesses with employees subject to restrictive covenants in Georgia to ensure those restrictive covenants comply with the Georgia Restrictive Covenants Act. The decision further serves as a reminder to all businesses to carefully draft restrictive covenants in compliance with state law to ensure enforceability and to stay abreast of legal developments, especially in light of recent efforts to limit and diminish the enforceability of restrictive covenants.

Phelps is continuously monitoring changes in the law related to restrictive covenants and the number of growing efforts to minimize their enforceability. Please contact Erin Malone, Austin Laurienzo or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice and guidance.