United States: Non-Compete News: Georgia Court Of Appeals Confirms Lack Of Geographic Or Material Contact Limitation Does Not Invalidate Non-Solicitation Of Employees Covenant

Executive Summary: Georgia's recent Restrictive Covenant Act, enacted in 2011, does not directly address non-solicitation of employees a/k/a non-recruitment covenants, thereby leaving such provisions subject to the principles developed by courts through "common law" (i.e. case law). Because Georgia common law is not well developed on the requirements of employee non-solicitation covenants, employers often second guess the enforceability of such covenants. Fortunately, the Georgia Court of Appeals recently provided some clarification on these covenants in CMGRP, Inc. v. Gallant, No. A17A1168 (Ga. Ct. App. Oct. 4, 2017), where it made clear that non-solicitation of employees covenants do not require geographic or material contact limitations to be enforceable.

Factual Background

When Maggie Gallant began working for CMGRP in 2008, she executed an employment agreement containing restrictive covenants precluding her from recruiting CMGRP employees or soliciting CMGRP clients for one year after her resignation. Significantly, the non-solicitation of employees covenant did not have a geographic limitation and was not limited to CMGRP employees with whom Gallant had an established relationship. When Gallant later resigned from CMGRP and began working for a competitor, CMGRP sent Gallant a cease-desist letter, highlighting the restrictive covenants contained in the employment agreement and notifying Gallant that CMGRP was aware of Gallant actively recruiting other CMGRP employees. In response, Gallant filed suit against CMGRP, seeking a declaration as to the legal effect of these restrictive covenants.

Material Contact and Geographic Limitations Not Required

At the outset, the trial court declared the employee non-solicitation covenant void because it was not limited to CMGRP employees with whom Gallant had an established relationship. However, the Court of Appeals reversed the trial court's ruling, holding that employee non-recruitment provisions need not provide an employee-relationship limitation to be enforceable. The Court cited several prior decisions where it upheld employee non-recruitment provisions that were not limited to employees with whom the former employee had an established relationship. The Court of Appeals also noted that the covenant's lack of a geographic limitation was of no consequence, as it has upheld employee non-recruitment provisions that lacked geographic limitations in the past.

Gallant also made the argument that under the non-severability rule, the non-recruitment provision was void because the customer non-solicitation provision in the same agreement was void. The non-severability rule (for pre-May 2011 contracts) holds that if one restrictive covenant is unenforceable, all restrictive covenants are unenforceable, even if on their own they would be considered reasonable. The Court of Appeals rejected Gallant's argument, holding that unlike non-compete and customer non-solicitation covenants, non-recruitment covenants are analyzed separately and do not automatically fail under the non-severability rule. While this decision did not interpret the provision pursuant to Georgia's May 2011 Restrictive Covenant Act, this decision is in step with the Act, which permits striking void provisions from the agreement, while leaving any remaining reasonable provisions in force.

Accordingly, the Court of Appeals held that this non-solicitation of employees covenant was enforceable notwithstanding its lack of a geographic or material relationship limitation, and even though the same agreement contained a void customer non-solicitation provision.

The Bottom Line: This decision provides much needed guidance regarding the enforceability of non-solicitation of employee covenants in Georgia. Such covenants need not provide an employee-relationship limitation or a geographic limitation to be enforceable. Furthermore, such valid non-recruitment covenants may be severed from and withstand other void covenants contained in the same agreement. This case also serves as a reminder to employers that non-solicitation of employee covenants are not subject to Georgia's recent Restrictive Covenant Act, regardless of the date of the agreement.

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