Georgia Non-Compete Law: The Not-So-Old Law

Although the pre May 11, 2011 law is often times referred to as the “old law”, it is important to remember that this law is still effective for those contracts entered into before May 11, 2011. In this blog post, we will go over the basics of the old law and some specific examples of its interpretation by Georgia courts. As an initial note, the old Georgia common law tends to be much more favorable to employees and less favorable to employers who are trying to enforce a restrictive covenant provision against an employee.

When restrictive covenants are part of an employment agreement, they are subject to strict scrutiny[1] and will be found to be enforceable only “if they are reasonable in terms of time, territorial coverage, and the scope of activity precluded, considering the legitimate business interests the employer seeks to protect and the effect on the employee.” [2] Important and specific to the old law, where one portion of a non-compete clause in an employment contract fails, all of the restrictive covenants in the employment contract must fail as well. [3] This is a marked difference from the May 11, 2011 law and one will focus on in the next blog post. Now that we understand the basics of the old law, let’s go into specifics a bit more. Specifically, what does “reasonable” mean in terms of duration, territorial coverage, and scope of activity precluded?

First, in Georgia, and under the old law, a noncompetition clause in an employment contract must contain a “territorial limitation” specific enough to give the employee notice of what would violate the restrictive covenant by specifying with particularity the territory in which the employees’ conduct is restricted. [4] Basically, the restrictive covenant has to be specific as to the territory where the restrictive covenant applies. Many employers will identify the territory by city, county, zip code, or even by attaching a map highlighting the restrictive territory.

[5]However, it is important to note that the employer simply cannot choose any area that he or she desires to restrict the employee from competition. Rather, Georgia courts have held that not only does the territory description have to be specific, it also has to balance the employee’s right to earn a living without unreasonable restrictions and the employer’s right to protection from the employer appropriating business contacts. An example of an overly broad territory description can be found inParamount Tax & Accounting, LLC v. H&R Block Eastern Enterprises, Inc., 299 Ga. App. 596, 600 (2009). In that case, the employee was a tax professional at an H&R Block office in Gainesville, Georgia. In the employment contract, the employee was restricted from establishing or engaging in the preparation or electronic filing of tax returns as an employee, independent contractor, or in any other capacity in a territorial restriction “limited to business(es) or organizations located or conducted within, or soliciting business within, Associate’s district of employment…and ten (10) miles of such district’s boundaries at the time of the Agreement.” [6] The employer also attached to the employment contract a map that outlined the Gainesville District and its borders. The court found the restriction unenforceable because it did not limit the prohibited conduct to a specific geographic area and would essentially prevent the employee from working with a company anywhere in the United States, if her employer engaged in the preparation and electronic filing of tax returns and either has an office, or advertises within ten miles of, the employer’s Gainesville district.

Second, under the old law, a non-compete agreement must contain a time limitation. There is not a bright line rule for what is considered a reasonable time limitation as courts have found time limitations to be reasonable for both 6 months [7] and 10 years [8] – and everywhere in between. Georgia courts interpret each agreement separately under the old law. In order to determine whether the time limitation in your non-compete agreement is reasonable and therefore enforceable, it must be analyzed considering the particular facts and circumstances of your employment.

Third, Georgia courts also look to the scope of activity prohibited in determining whether a non-compete under the old law in enforceable. Of particular importance is the use of the phrase “in any capacity” when trying to restrict competition. Georgia courts have routinely held this language to be unenforceable, rendering the entire agreement unenforceable. Instead, the restrictive activity of the employee must have some similarity to the business activities of the former of the employer. Along these same lines, the restriction has to be narrowly tailored to protect only the legitimate business interests of the employer.