Lack of Geographic Boundaries Dooms Georgia Firm’s Noncompete Agreement, Georgia Employment Law Letter
The Georgia Court of Appeals recently held that a noncompete provision between an employer and an independent contractor—which was limited to a very specific subset of clients and looked a little like a nonsolicitation agreement—was invalid because it contained no geographic restriction. The decision is important because very few cases have interpreted the Restrictive Covenant Act (RCA), passed in 2012, and none had addressed what language or omissions would render a noncompete clause unenforceable. Consequently, Georgia employers should consider clearly designating a geographic area in a noncompete provision.
Contractor Goes To Work For Competitor
CarpetCare Multiservices, LLC, provides cleaning, repairing, and resurfacing services to apartment complexes. The company primarily uses a network of independent contractors to deliver its services and requires them to sign a confidentiality and nondisclosure agreement (NDA). Elgin Thomas Carle was an independent contractor who signed a CarpetCare NDA.
During Carle’s contractual relationship with CarpetCare, he performed resurfacing work at several apartment complexes, including Greenhouse Apartments. After he worked for CarpetCare for about 18 months, the company terminated his contractual relationship. Thereafter, he continued to provide resurfacing services to Greenhouse on behalf of his new employer, CarpetCare’s competitor. He also continued to provide resurfacing services at other apartment complexes where he had worked while employed by CarpetCare in his individual capacity.
CarpetCare sued Carle under a noncompete provision in the NDA that prohibited him from performing any service he provided at CarpetCare for customers he served at the company for a period of one year from the date of his termination. The trial court held that based on the RCA’s language, the noncompete provision was unenforceable because it had no geographic area restriction. The Act provides that noncompete covenants are permitted “so long as such restrictions are reasonable in time, geographic area, and scope of [the] prohibited activities.”
Appeals Court Pulls Rug Out From Under Carpetcare
CarpetCare appealed the decision to the court of appeals, contending the trial court erred by holding that the noncompete covenant was void and unenforceable for failing to contain a geographic limitation. Specifically, the company argued the term “geographic area” in the statute shouldn’t be interpreted literally and that the limitation on the type of customer Carle could not have contacted under the noncompete provision should satisfy the geographic area requirement.
The court of appeals disagreed with CarpetCare because the company’s interpretation was inconsistent with the RCA’s language and wouldn’t afford the statutory text its “plain and ordinary” meaning. Therefore, the court affirmed the trial court’s decision and found the noncompete was unenforceable because it didn’t contain any reference to a geographic area limitation.
Georgia Court of Appeals Judge William M. Ray II (who was recently appointed to the U.S. District Court for the Northern District of Georgia) issued a dissenting opinion. Judge Ray pointed out the noncompete provision did include a limitation that Carle couldn’t work (for a limited time) for any of CarpetCare’s customers with whom he had worked while still employed with the company. Thus, according to the judge, that covenant was inherently and indisputably reasonable as it protected the company’s interest in its relationship with its customers.
The covenant also allowed Carle to compete with his former employer anywhere, at any time, and to do anything, so long as it wasn’t for a customer with whom he had previously served. According to Judge Ray, the “practical effects” of the decision would find that reasonable noncompete agreements are unenforceable.
Since the RCA’s passage, very few cases have interpreted its language. For that reason alone, the appellate court’s ruling is instructive. While the decision was divided, employers should be wary that most judges will interpret the statute strictly and may find that noncompete covenants without a geographic limitation are unenforceable even if they are otherwise reasonable. Interestingly, the court of appeals didn’t address whether the agreement could have been rehabilitated by “bluepenciling” (or editing) since that issue wasn’t part of the appeal.
A bigger reminder from the decision is that the courts will continue to scrutinize restrictive covenants. You should avoid a “one-size-fits-all” approach and narrowly tailor agreements to the employee signing on the dotted line. One last note: Consult with your employment attorneys about any outdated noncompete agreements.
Subscribers to the Georgia Employment Law Letter can read the full December issue on its website.