The Limits of Blue-Penciling: Georgia Court Strikes Non-Compete That Lacks Geographic Restriction

By Joseph A. White and David S. Fried

It drew a great deal of attention a few years ago when Georgia adopted its new “restrictive covenants” statute, Code Section 13-8-51.  Among other things, the new statute gives Georgia judges the ability to “blue pencil” (or rewrite) overly broad restrictive covenants and then enforce those agreements as rewritten.  The operative provision, Code Section 13-8-54(b), empowers courts to modify an overly-broad restraint to (a) effectuate the statute’s intent (protecting employers’ legitimate business interests); and (b) “achieve the original intent of the contracting parties to the extent possible.”  This constituted a substantial departure from prior Georgia law, which routinely saw courts strike down restrictive covenants that were overly broad in any of three ways (duration of restriction, geographic scope of restriction, or type of activity restricted).

A recent decision shows, however, the limits of the blue-pencil doctrine.  Carpetcare Multiservices, LLC v. Carle concerned a non-compete agreement that lacked a geographical restriction altogether.  Case No. A18A1094 (Ga. Ct. App. Oct. 3, 2018).  That is, rather than restricting its former employee from working in any particular geographical areas, the agreement prohibited him, for one (1) year following his separation, from “provid[ing] [services] to any customer with whom [he] had any contact during the term of his employment . . .”   The question for the appellate court was whether this agreement, lacking an express geographical restriction, complied with Georgia’s new “restrictive covenants” statute.

In a 2-to-1 decision, the appellate court held that it did not.  Judge Rickman, writing for the majority, observed that the statutory provisions governing non-competes specifically address geographical restrictions.  See O.C.G.A. § 13-8-53(a) & O.C.G.A. § 13-8-53(c)(2).  In contrast, the statutory provisions governing non-solicitation agreements excepted the need for geographical restrictions, stating “[n]o express reference to geographic area . . . shall be required in order for the [non-solicitation] restraint to be enforceable.”  O.C.G.A. § 13-8-53(b).  The appellate court found this distinction meaningful and reasoned that the Georgia legislature meant to require non-competes, as opposed to non-solicits, to contain explicit geographic restrictions: “Because the non-compete covenant did not contain any reference to a geographic area limitation, it failed to comply with O.C.G.A. § 13-8-53(a), and, thus, the trial court correctly determined that it was void and unenforceable.”

Judge Ray, in a dissenting opinion, took a less textualist approach and arrived at a different conclusion:

“It is true that a restrictive covenant must be reasonable in ‘time, geographic area, and scope of prohibited activities’ so as to be enforceable. OCGA 13-8-53(a). And, it is also true that the non-compete covenant in the instant case did not contain an expressed geographic area restriction. What it did include, however, is a limitation that the Appellee/Employee could not work (for a limited time) for any of the Appellant/Employer’s customers with whom he had worked while still employed with the Appellant. Thus, this covenant by its own terms is inherently and indisputably reasonable. It protects the Appellants’s interest in its relationship with its customers; but also, it allows the Appellee to compete with his former employer anywhere, at any time, and to do anything, so long as it is not for a customer with whom he had previously served.

The majority believes that statute requires a geographic restriction. It does not. Rather, the statute only requires that any geographic area restriction be reasonable. Since no geographic restriction exists in this covenant, and it is limited in that it applies just to customers with whom the Appellee has previously worked, then the lack of a geographic area restriction is of no consequence.

Consider for the moment the practical effect of the majority’s ruling. The Appellant could have written the non-compete covenant to prevent the Appellee from providing similar services in the Appellant’s home of Cobb County to anyone, regardless whether the Appellee had worked for such customers previously or not, and such covenant would have been enforceable. But, by limiting the restriction only to the Appellant’s customers for whom the Appellee had actually worked while employed with the Appellant, wherever they may be, the majority would declare.”

Regardless of which opinion one considers better-reasoned, the case demonstrates the limits of the blue-pencil doctrine; it also demonstrates that, even in this new blue-pencil era, Georgia employers cannot take for granted that the State’s courts will correct or forgive their drafting oversights.

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