Many employers require employees to sign restrictive covenants prohibiting them from engaging in certain activities after their employment ends. These prohibitions frequently include - opening or working for a competing business, soliciting customers, recruiting employees, and using trade secrets. While noncompetition restrictions are under assault from the Federal Trade Commission, the National Labor Relations Board, and various state legislatures, their use in Georgia is permitted under the state’s Restrictive Covenants Act (the “Act”). But “I” s must be dotted, and “T” s must be crossed before these restrictions can be enforced under the Act. As the recent case of North American Senior Benefits v. Wimmer reveals, when those “I”s and “T”s are ignored the outcome may not be what an employer expects.
Geography Matters
North American Senior Benefits (“NASB”) is a nationwide marketing organization operating in the insurance industry. Alisha and Ryan Wimmer were employed by NASB as agents and each signed several restrictive covenants, including one prohibiting them from soliciting NASB’s employees to leave the company.
After the Wimmers ended their employments with NASB they formed a competing company and began soliciting NASB employees to join them. Needless to say, NASB was not happy about that and filed suit to enforce the covenant and enjoin the solicitations.
The state-wide business court held that the no-solicitation covenant was void and unenforceable because it did not have a geographic limitation. It also rejected NASB’s request to “blue-pencil” the covenant as permitted by the Act. According to the court, adding a geographic limitation went beyond “blue pencil” revisions and constituted rewriting the covenant.
Once again, NASB was not happy and appealed. But its mood would not be changed by the appellate court. According to the Court of Appeals, the “plain and ordinary meaning” of the Act requires that a restrictive covenant have a geographic limitation unless it is a restriction on the solicitation of customers or the use of trade secrets. Neither exception applied to the employee nonsolicitation provision. As a result, the Wimmers were free to solicit NASB’s employees to leave the company and join their business.
The Court of Appeals also found no error in the trial court’s refusal to use its “blue pencil.” First, the Court found that the Act did not change pre-existing law regarding modifications of restrictive covenants. Relying on pre-Act case law, the Court held that a “blue pencil marks, but does not write” a contract. As a result, the trial court lacked the authority to write a geographic limitation that the parties failed to include in their agreement.
While not likely to make NASB happy, there was a dissenting opinion in which the Justice explained that numerous courts in Georgia have upheld prohibitions against soliciting employees that lacked a geographic limitation. As the dissenter saw it, a geographic limitation was not required because the covenant, on its face, provides specificity as to “who” cannot be solicited, i.e., current employees, and therefore provides “fair notice” of what was prohibited. Finally, the dissent asserted that a court’s interpretation of a restrictive covenant must “comport with the reasonable intent and expectations of the parties to the covenant and in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement.” We suspect that did little to make NASB feel better about the outcome.
What Does this Mean for Employers in Georgia?
Wimmer is a Georgia Court of Appeals decision. It can be appealed to the Georgia Supreme Court. If so, the dissenting opinion may ultimately prevail. But, for now there is authority in Georgia allowing former employees to solicit your current employees if your prohibition against such conduct does not contain a geographic limitation. Does yours?