The enforceability of restrictive covenants in Georgia

A recent case is indicative of the limits placed on covenants not to compete.

Whether a non-competition agreement is enforceable in Georgia depends on whether it meets criteria set out by state law. In 2010, Georgia voters approved a measure by constitutional amendment that shifted the enforceability of non-competition agreements towards the side of employers seeking to protect trade secrets.

That is not to say employers have carte blanche when enforcing restrictive covenants such as non-competition agreements, however. A recent decision out of the Georgia Court of Appeals is a good reminder of when a covenant not to compete is unenforceable.

Holland Ins. Group, LLC v. Senior Life Ins. Co.

This case, decided by the Georgia Court of Appeals late in 2014, arose when an insurance company terminated the contract of an independent agent. The insurance company then suspended payment on commissions for violating a restrictive covenant contained in the agreement.

The agent contended that a portion of the covenant not to compete rendered the provision unenforceable. Namely, the agreement included a provision stating "you hereby agree that, with respect to any Customer of ours who completely or partially severs his/her relationship with us in favor of you . . . . you shall pay us an amount equal to 100 percent of the commissions you earned." The agreement attempted to forfeit the agent's right to previous commissions regardless of who initiated the contact after termination, the agent or customers.

The Appeals Court noted that in Georgia, covenants not to compete generally cannot prevent an employee from accepting business from customers of his or her former employer, provided the clients are unsolicited. In other words, an employer can prevent an employee from taking unfair advantage of client contacts developed while working for the company, but cannot prevent an employee from accepting work from an employer's former customers who reach out on their own.

Implications of the decision

This decision reaffirms that restrictive covenants must be narrowly tailored to protect confidential information and trade secrets, despite the greater ability of employers to protect confidential information and trade secrets in employment contracts. When enforcing a covenant not to compete, Georgia courts will look to the Gorgia Restrictive Covenants Act to determine if the employee can be subject to non-competition agreements and if the agreement otherwise meets the time, geography, and other limits placed on restrictive covenants under state law.

At Kaufman & Forman, P.C., our attorneys have experience advising both employers and employees on restrictive covenants in Georgia. Our attorneys are also skilled litigators should the enforceability of a restrictive covenant become contested. Contact our office to discuss potential legal options.

Keywords: Covenants not to compete, restrictive covenants, non-competition agreements, enforceability, employment contracts, litigation.