A company brought suit against a former employee, alleging breach of a non-competition agreement. A Georgia trial court ruled in favor of the employer and upheld the non-compete agreement despite the employee’s argument that the agreement was not enforceable under Georgia law. The employee appealed the trial court’s ruling, and the appellate court overruled the trial court, holding that the non-compete agreement was an unreasonable restraint on trade. This case is a poignant reminder to employers of the employee-friendly nature of Georgia non-compete law, and the need to draft restrictive covenants with great care.
Background
The employer in the case, a Georgia corporation, provided alcohol and drug testing services to various companies and organizations in multiple states. The employee was initially hired as the office manager, and although her job title later changed to Vice President of Operations, her duties did not substantially change. Her responsibilities included providing general customer service, ensuring that specimens were properly retrieved from clients and transported to the testing lab, contacting clients, and performing general office management.
When initially hired, the employee signed a non-competition agreement which provided that the employee would not compete with the employer “in any area of business” conducted by the employer, including solicitation of existing accounts. The non-competition agreement was to remain in effect for a 2-year period, and cover a geographic area within a 50 mile radius of the employer’s office location. After the employee quit her job, she began working at a medical center as a medical assistant. The medical center offered services such as occupational medicine, physicals, and workers’ compensation injury treatment, as well as alcohol and drug testing. Her duties included setting patient appointments; taking patient medical histories; checking vital signs; performing urinalysis testing for glucose, protein, blood, and pH-level monitoring; administering injections; conducting alcohol breath tests; and collecting specimens for drug testing.
Upon discovering her new employment, the employer filed suit, alleging, among other things, that the employee, through her employment with the medical center, was actively competing in violation of the non-compete agreement. The trial court ruled in favor of the employer and upheld the validity of the non-compete agreement. The employee appealed the ruling, and the court of appeals reversed the trial court’s ruling, holding that the agreement was not enforceable under Georgia law.
Overbroad Scope of Activity: "In Any Capacity"
As discussed in our last issue, Georgia non-competition covenants that are ancillary to an employment contract are subject to strict scrutiny and will be voided by Georgia courts if they impose an unreasonable restraint on trade. Under Georgia law, a three-element test of duration, territorial coverage, and scope of the activity prohibited is used by the courts as a helpful tool in examining the reasonableness of the particular factual setting to which a non-compete agreement is applied.
Unlike most states, Georgia does not use the “blue pencil” doctrine. Thus, if any portion of a restrictive covenant is found unreasonable, the entire covenant must fall. In other words, under Georgia law, the baby gets thrown out with the bathwater.
The court noted that although the agreement provided some particularity by referring to the solicitation of existing accounts, when read as a whole, the Agreement was intended to prevent any type of competing activity whatsoever, with the reference to solicitation merely being illustrative of one type of prohibited activity. The court stated that “such a prohibition clearly is unreasonable under our case law… [a] non-competition covenant which prohibits an employee from working for a competitor in any capacity, that is, a covenant which fails to specify with particularity the activities which the employee is prohibited from performing, is too broad and indefinite to be enforceable.” Because the restriction imposed greater limitations on the employee than was necessary for the protection of the employer’s legitimate interests, it rendered the entire non-compete provision unenforceable.
"Heart and Soul" Exception
While it struck down the non-compete provision because of an overbroad "scope of activity", the Court discussed a rare exception: the "heart and soul" exception. Specifically, the Court recognized that an overbroad scope of activity may be upheld when the departing employee is the "very heart and soul" of the business whose "departure effectively brought the business to a standstill." This "heart and soul" exception applies only where the non-compete also has a "very restricted territory" and a short time restriction. Under the facts of its case, the Court reasoned that, while the departing employee (the VP of Operations) may have been a "major player" in the employer's business, and her departure "may have hurt" the employer, it did not bring the employer's business "to a halt." Accordingly, the exception did not apply to save the non-compete.
Employers Bottom Line
In Georgia, a prohibition against competing with a former employer "in any capacity" renders a non-compete void. Instead, Georgia courts believe an employer’s legitimate business interests can be protected adequately by a contractual provision prohibiting the employee from engaging in those specific activities which the employee performed for the employer, or through a reasonable non-solicitation of customers provision. This case reminds us that it isn’t uncommon for Georgia courts to invalidate entire non-competition provisions as unreasonable due to one element of the provision being overly broad and indefinite. Employers should be extremely careful when drafting any type of restrictive covenant for use in any state, particularly Georgia, and should always consult with an attorney. When preparing a non-compete agreement, employers must take into consideration the nature and scope of their business and the employee’s job duties, customer contacts, access to confidential information, skill level, and all other relevant factors.