March 2008

Georgia – Court Reaffirms Strict Scrutiny Applied to Restrictive Employment Covenants

Holland & Knight Newsletter
Joshua I. Bosin
The Georgia Court of Appeals recently reaffirmed the longstanding principle in Georgia that restrictive covenants that are ancillary to an employment agreement are subject to the strictest scrutiny and will be voided by the courts if they impose an unreasonable restraint on trade. See Stultz v. Safety & Compliance Management, Inc., 648 S.E.2d 129 (Ga. App. 2007),

In February 2002, Safety & Compliance Management, Inc. (S&C), a Georgia corporation, hired Angela Burgess to serve as an office manager in its Rossville, Georgia office. Although Burgess’ job title later changed to Vice President of Operations, her job duties, which included providing general customer service, ensuring that medical specimens were properly retrieved from clients and transported to testing labs, contacting clients and performing general office management, did not change.

When she was hired, Burgess signed a non-competition agreement which stated she would not compete in any area of business conducted by S&C for a two-year period following the termination of her employment within a 50-mile radius of Rossville, Georgia.

In May 2004, Burgess ended her employment with S&C, and began working as a medical assistant at the Rossville Medical Center (RMC). RMC is a medical facility that provides a variety of medical services, including occupational medicine, medical physicals and workers’ compensation injury treatment. S&C then sued, alleging, among other things, that Burgess’ employment with RMC violated her non-competition agreement with S&C.

Reversing the lower court, which found the restrictions on Burgess’ employment unobjectionable, the Georgia Court of Appeals found that Burgess’ non-competition agreement was, in fact, unreasonable in scope and territorial coverage and therefore unenforceable in Georgia.

In Georgia, “[a] non-competition covenant which prohibits an employee from working for a competitor in any capacity, that is, a covenant which fails to specify with particularity the activities which the employee is prohibited from performing is too broad and indefinite to be enforceable.” Id. at 132. Furthermore, “[a] non-competition agreement must balance a former employee’s right to earn a livelihood, with an employer’s right to protect itself from a former employee’s unfair appropriation of unique business information ... .” Id. at 133 n.3. When a restriction imposes more limitations on an employee than reasonably necessary for the protection of legitimate business interests, the entire non-competition provision will be deemed unenforceable. Because Burgess’ non-competition agreement with S&C prohibited her from competing in any area of business conducted by S&C, without qualification, it was unenforceable in its entirety.

Georgia courts are among the strictest in the country in assessing the enforceability of restrictive covenants in employment agreements. And this case reminds us that Georgia courts often invalidate entire non-competition provisions where just one element of a restriction is overly broad and indefinite.

To limit challenges to non-competition provisions when drafting employment agreements, it is critical to identify your business objectives with regard to a particular employee. For example, is there a valid reason for prohibiting an employee’s future business activities, or is the real goal to prevent solicitation of customers when that employee departs? What is the exact nature of the business activity that you want to prospectively restrict? A careful analysis of the purpose of the non-competition restriction will enable you to draft a provision that is precise enough in scope and duration to withstand future legal challenges.

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