Noncompete News: Georgia Court of Appeals Reiterates Narrow Scope of Non-Solicitation Clauses

In a recent opinion, the Georgia Court of Appeals reversed a trial court’s decision to uphold the validity of non-solicitation and non-compete clauses in an employment agreement. The appellate court’s reversal of the trial court decision was premised on a strict reading of Georgia case law that delineates the permissible scope of non-solicitation clauses.

The case, Trujillo v. Great Southern Equipment Sales, LLC., was brought by Great Southern against Trujillo, a former employee, based on an alleged violation of the restrictive covenants found in Trujillo’s employment agreement with Great Southern. Great Southern, a company engaged primarily in the business of selling transportation equipment, hired Trujillo to work as a salesperson. In that capacity, Trujillo received on-the-job training from Great Southern’s president, lists of Great Southern’s customers, and introduction to many of the company’s customers and suppliers. Trujillo signed a “Confidentiality and Restrictive Covenant Agreement,” which included separate non-solicitation and non-competition clauses.

Two years after being hired, Trujillo resigned from her sales position. Within days of her resignation, she began working for a competing company. Great Southern was notified by several of its customers that Trujillo was soliciting them for the same type of business they had conducted through Trujillo when she worked for Great Southern. Great Southern brought suit, and, the next day, the trial court granted Great Southern’s motion for a temporary restraining order against Trujillo, enjoining her from competing with Great Southern and soliciting its customers. After a formal hearing, the trial court found that the “Confidentiality and Restrictive Covenant Agreement” was enforceable and issued a preliminary injunction preventing Trujillo from competing with Great Southern and soliciting its customers. The court also directed Trujillo to return any Great Southern property in her possession.

In her appeal of the trial court’s ruling, Trujillo argued that the court erred in granting the injunction because the “Confidentiality and Restrictive Covenant Agreement” was unenforceable as a matter of law. Specifically, she argued that the court erred in finding that the agreement’s non-solicitation clause was enforceable even though it did not contain a geographic restriction. Before addressing this argument, the Court of Appeals determined that, because the Agreement was part of an employment contract, a strict level of scrutiny applied to its interpretation. Under Georgia law, restrictive 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.” The non-solicitation clause contained in Trujillo’s agreement provided that:

During Employee’s employment with Employer and for a period of three (3) years following the Separation Date, Employee shall not solicit any person or entity to whom Employer has provided products or services during the three (3) years immediately preceding the Separation Date or to whom Employer is actively soliciting to provide products or services as of the Separation Date (collectively, “Customers”) with the intent to sell or provide any product or service, competitive or potentially competitive, with any product or service sold or provided by Employer. The non-solicitation restriction set forth in this [section] is specifically limited to Customers of Employer with whom Employee had contact (whether personally, telephonically, or through written or electronic correspondence) during the three (3) year period immediately preceding the Separation Date or about whom Employee had confidential or proprietary information because of his/her position with Employer.

Under Georgia law, a non-solicitation covenant that is not geographically limited may still be enforceable if it is restricted only to those customers with whom an employee had material contact as a result of her employment. The non-solicitation clause in Trujillo’s agreement initially limited the restriction to customers with whom Trujillo had contact while working for Great Southern. However, the provision ended with an additional limitation that prohibited Trujillo from contacting any customers about whom she had confidential or proprietary information, regardless of whether she had contact with the customer during her employment. The question before the court, then, was whether the prohibition against soliciting customers about which the employee had “confidential or proprietary information,” without regard to whether the employee had a business relationship with that customer, could render the non-solicitation clause invalid as a whole.

Great Southern argued that the additional language did not make the non-solicitation covenant overly broad; instead, the language merely reiterated the employee’s separate obligation under the contract to maintain the secrecy of confidential information. The Court of Appeals disagreed, however, holding that the prohibition was not a reiteration of the confidentiality clause but was rather “an effort to impermissibly broaden the class of customers whom Trujillo could not solicit.” Accordingly, the court struck down the non-solicitation covenant as invalid.

The consequential effect of this holding opened up a new form of relief for Trujillo. Because the non-solicitation clause was unenforceable, the otherwise valid non-competition clause included in the same agreement was likewise struck down. Where restrictive covenants are strictly scrutinized as employment contracts, Georgia does not employ the “blue pencil” doctrine of severability, and will strike down both non-solicitation and non-competition covenants contained in the same agreement if either one of them is found unenforceable.

Although the ruling in this case does not come as a surprise, it serves as a poignant reminder that Georgia courts typically will construe a restrictive covenant in the employee’s favor if it does not strictly conform to the limits and language set forth in Georgia case law. Accordingly, prudent employers must ensure that the language in their employment agreements are up-to-speed with Georgia law on the permissible scope of restrictive covenants.