Recent Georgia Court Decision Potentially Invalidates Most Employee Non-Solicitation Covenants

As the importance of retaining talent has risen to the highest level in the current tight labor market, covenants that prohibit a former employee from solicitating other employees have become increasingly salient in recent years. Litigation involving solicitation of employees – especially mass raiding cases involving large numbers of employees moving between competitors – is increasingly common, so having enforceable anti-poaching provisions is vital.

The Georgia Court of Appeals just made it significantly more difficult for employers to enforce employee non-solicitation provisions in Georgia. In the Court of Appeals’ June 13 decision in North American Senior Benefits v. Wimmer, it held that an employee non-solicitation provision must have a geographical limitation in order to pass muster under Georgia’s 2011 Restrictive Covenants Act (RCA). Because most traditional employee non-solicitation provisions do not have such clauses, the majority of such restrictions are now unenforceable in Georgia. Employers might want to take immediate action to protect their company’s workforce.

Gap in 2011 Law
Traditionally, Georgia law was permissive with respect to employee non-solicitation provisions. Even under Georgia’s pre-2011 common law – which was extremely hostile to restrictive covenants in general – numerous cases set forth that anti-poaching restrictions were subject to a lower standard of scrutiny than non-compete or customer non-solicitation paragraphs.

The RCA made it significantly easier to enforce covenants, stating that “reasonable restrictive covenants contained in employment and commercial contracts serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing businesses within the state.” However, the statute did not explicitly address employee non-solicitation restrictions.

Court Takes A Hard Line
The Court of Appeals picked up on this omission. It noted that employee non-solicitation provisions restrict competition, and that the statute holds that “no contract provision that ‘restricts competition’ can be enforced unless it is ‘reasonable in time, geographic area, and scope of prohibited activities.’ The non-solicitation-of-employees restrictive covenant before us does not contain an expressly stated geographic area.”

The Court of Appeals went on to explain that the RCA exempts two types of provisions from a requirement of a geographic limitation – restrictions on solicitation of customers and use or disclosure of confidential information – but proclaimed that these exceptions were not applicable to employee non-solicitation provisions. Finally, the Court of Appeals took a narrow view of the power of courts to modify unenforceable covenants, holding that the trial court did not have the power to add a territorial limitation to the covenant, only to modify overbroad provisions related to territory.

Georgia Employers Should Act Now
The lesson for employers with operations in Georgia is clear: you need to have your employees sign new restrictive covenant agreements (or at least an amendment) wherein the employee non-solicitation provision has a geographic limitation.

This is not as hard to do in Georgia as it would be in other states, as Georgia does not require you to provide new consideration for existing at-will employees (above and beyond continued employment) to sign a restrictive covenant agreement as some other states do. Simply put, an employer in Georgia can make signing a new agreement a condition of continued employment; it does not need to pay employees for new agreements.

In Conclusion
It is possible that the Georgia Legislature will amend the RCA to address the issue identified by the Court of Appeals. Likewise, it is possible that the Georgia Supreme Court will overrule Wimmer or another panel of appellate judges will issue a contrary opinion. It may be that the plaintiff in Wimmer did not make the correct arguments as to whether the RCA requires territorial limitations in non-recruitment provisions.

However, you can’t count on any of these situations occurring. Prudent employers with operations in Georgia who utilize restrictive covenant agreements should consider modifying their existing agreements to add a territorial limitation to their anti-poaching paragraphs so as to ensure that they remain enforceable. The exact language to use must be tailored based on the base of the employer’s operations, the geographic scope of its business, and the geographic location of employees and their work.

If you have questions or need assistance with non-solicitation issues, please contact one of our attorneys at Schwartz Rollins, or our legal assistant, Vicki Perry at 404.844.4130.