You May Need To Update Your Employee Non-Recruitment Covenants

Last month we posted regarding the use of employee non-solicitation provisions by employers in Georgia; this is a follow-up to that post. In the case of North American Senior Benefits, LLC v. Wimmer, two insurance agents left their employer and started a competing business. Their former employer then sued them for violating their restrictive covenants, including their employee non-recruitment covenants. Georgia’s State-wide Business Court found that the covenants were invalid. The Georgia Court of Appeals agreed, holding that non-recruitment and no-hire covenants must have a territory to be enforceable. Prior to this case, trial courts disagreed on whether a territory was required for this type of restrictive covenant. Wimmer is the first appellate decision on this issue.

The Georgia Supreme Court has been asked to review and reverse the decision. It is possible the case could be overturned, but it is very difficult to predict what may happen. We do not recommend waiting to see what happens with the appeal. We recommend employers act now, particularly if your organization is concerned about departing employees soliciting colleagues.

At Schwartz Rollins we review agreements with restrictive covenants all the time. In most agreements, employee non-recruitment covenants do not include a territorial limitation. Therefore, there is a good chance your employee non-recruitment covenants are impacted by the ruling and may need revision. We recommend that all employers review the restrictive covenant agreements that they currently have in place. If you need to make changes, we recommend that you work with legal counsel to ensure that the geographic scope selected is reasonable and enforceable. Additionally, if such a change is made, we recommend that you require all employees to sign an amendment or a new agreement to be sure that the non-recruitment covenant is enforceable under Georgia law. In Georgia, continued employment is sufficient consideration to support a new or amended restrictive covenant agreement. Therefore, you need not pay your employees anything in exchange for signing a new agreement. If you have employees in other states, you may need to offer additional consideration for the new agreement, based on the law in the particular state. We can help you figure that out.

In the Wimmer decision, the Court of Appeals made another important ruling. It held that courts can “blue-pencil” overbroad covenants by striking offending language. However, courts cannot write in terms where none exist. For example, courts cannot write in a territory where no territory is present in the agreement. This is a key clarification of Georgia restrictive covenant law.

Many of you may be thinking, what difference does this decision make in light of the fact that the FTC has proposed a rule that bans all non-compete agreements. First, the FTC’s proposed rule is still pending. More importantly, the proposed rule would not ban most reasonable employee non-recruitment covenants. Non-recruitment covenants can be an important tool to protect against unfair competition. Thus, employers should not let the FTC’s potential actions stand in the way of updating their agreements.

Both Georgia law and the federal laws relevant to your workforce are constantly changing. You can count on Schwartz Rollins to continue to keep you updated on decisions that can affect your business. Please contact one of our attorneys at Schwartz Rollins, or our legal assistant, Vicki Perry at 404.844.4130 if you have questions or would like to discuss updating your restrictive covenant agreements based on this decision.