Atlanta Master Barber Gets Clipped By Noncompete, Georgia Employment Law Letter
Employment attorneys all over Georgia sharpened their blades as soon as they heard a new decision on the Georgia Restrictive Covenants Act (RCA) was forthcoming. Unlike the previous handful of decisions under the Act, the new ruling—Kennedy v. Shave Barber Co.—got to the root of the law and finally gave us some of the clarity for which we had been clamoring. The decision combs through various key elements of the RCA, such as who constitutes a “key employee,” what is a “legitimate business interest,” and the extent of the Act’s “blue-pencil” language, and even discusses social media solicitations. While the decision doesn’t deliver a fancy pompadour, it’s still a solid crew cut that can assist employers with their style.
The employee at issue worked as a master barber for The Shave, a barbershop in a posh Atlanta in-town neighborhood. The shop and the barber relied primarily on social media to connect with clients, promote the service, and solicit business. While the barber had her own social media accounts, she and the barbershop tagged each other for joint marketing.
After two other employees left and hurt the business by starting a competing barbershop a few doors down, The Shave required its stylists, including the barber in the lawsuit, to sign a noncompete agreement. Under the arrangement, the barber agreed (1) not to work in the men’s grooming industry within a three-mile radius of any The Shave location for two years after leaving her employment and (2) not to solicit the shop’s customers (with whom she had personal contact) or employees to join a competing business within a three-mile radius of The Shave for one year after leaving the job.
More than a year after signing the noncompete, the barber resigned. She announced her last day on social media and tagged The Shave so that the information appeared on the shop’s own social media accounts. The shop learned the barber was opening a salon 2.1 miles from The Shave’s location where she had worked. The barber continued to use her same social media accounts to advertise her new place, thus reaching many of the same clients she used to have, and even included photos of her work for previous customers and tagged them in her posts.
About a month after the barber opened the new salon, The Shave sued her. Less than a month later, a trial court enjoined the barber from operating the shop and soliciting any of her old customers. The barber appealed, to no avail—the Georgia Court of Appeals snipped all of her arguments and left her with nothing but stubble.
Detangling The Law
The first issue the court of appeals addressed was whether the barber was a “key employee,” making her subject to the RCA’s noncompete sections. The Act defines a key employee as one “in possession of selective or specialized skills, learning, or abilities or customer contacts, customer information, or confidential information.” The court of appeals agreed with the trial court that the barber fell within that definition since:
- In the underlying contract, she acknowledged she would “be customarily and regularly soliciting for THE SHAVE customers or prospective ”
- While working at The Shave, she regularly posted on social media, promoting and soliciting for the shop.
- On average, the barber provided grooming services to 230 repeat customers per month.
The appellate court then tackled the reasonableness of the geographic restriction after the trial court “blue-penciled” (or modified and trimmed) it. In the underlying injunction order, the trial court limited the restricted area to a three-mile radius around The Shave location where the barber worked. The appellate court found the modification was within the trial court’s discretion since it didn’t render the covenant more restrictive than the parties had originally drafted. The court of appeals then considered evidence presented by The Shave that (1) most of its customers lived or worked within three miles of the barbershop and (2) it suffered actual losses when the other barbers left and opened a salon within that radius.
Next up, the appellate court looked at whether the noncompete protected “legitimate business interests” under the RCA, which defined the term to include “[s]ubstantial relationships with specific prospective or existing customers…or clients” and “client good will.” It then found The Shave had devoted considerable resources to developing those kinds of relationships, and protecting them was legitimate.
The part of the ruling that may create the most debate or controversy was that the noncompete’s broad scope of prohibited activities was reasonable under the RCA. Prior to the Act, Georgia courts enforced noncompetes only when the scope of the prohibited activities reasonably related to legitimate business interests, which they generally defined as performing the same or similar duties for the competition. While the Act similarly requires that the scope of the prohibited activities be reasonable, it doesn’t provide much guidance in that regard.
The noncompete at issue prohibited the barber from competing against The Shave by “owning, managing, operating, representing, promoting, selling for, soliciting for, consulting for, controlling, or participating in the ownership, operation, acquisition, or management of a business selling or providing…services the same or similar to that provided by The Shave.” Some observers are already suggesting that because of the decision, Georgia employers may prohibit employees from working for the competition “in any capacity.” A careful review of The Shave’s noncompete, as well as a consideration of the facts, however, doesn’t support that inference.
Styling salons and barbershops tend to be small operations in which the main stylist is generally the owner and operator. The noncompete at issue limited the barber from owning or operating (at managerial and executive levels) a competing business. The provision didn’t prevent the barber from working at a salon in any capacity–for example, as a maintenance person. But it did prevent her from doing what she did—use The Shave’s investment in facilities and marketing to develop a clientele and start her own salon. As a result, while the scope of the prohibited activities went beyond those the barber performed at The Shave, they were reasonably tied to the shop’s legitimate business and industry interests.
Finally, the appellate court upheld the injunction on the barber’s nonsolicitation provision. In Georgia, as in most jurisdictions, generalized social media posts about a job change haven’t been interpreted as “soliciting” for restrictive covenant purposes. But the appellate court agreed with the trial court that the barber’s activities of calling out The Shave’s employees on YouTube videos and tagging them in social media posts crossed the line.
Mastering The Scissor Cut
This case offers a master lesson on the RCA—one of the few out there. As you or your counsel review your restrictive covenants agreement, here are some points to consider:
- There is no such thing as a “standard” restrictive covenants form for all employees—true noncompetes are limited to a subset of your workforce;
- Include language in noncompete contracts that allows you to address the elements of a claim early in a case, such as factual acknowledgements that show someone is a key employee;
- Make the geographic restrictions reasonable for each employee based on the territory in which she can harm your business because of her work for you there;
- Be ready to demonstrate that a geographic area is in fact reasonable with evidence such as client addresses;
- The scope of the prohibited activities in your noncompetes may go beyond what an employee does for you, but the leeway should still rationally relate to your legitimate business interests; and
- Always throw in protections against employee and client solicitation—those are significantly easier to enforce in Georgia!
Subscribers to the Georgia Employment Law Letter can read the full February issue on its website.