News & Insights

General BusinessOctober 16, 2024by Stanton LawNavigating Non-Solicit Agreements: What Employers Need to Know After Recent Rulings

With a Texas federal judge’s permanent injunction against the Federal Trade Commission’s proposed ban on non-competes, employers around the country are breathing a collective sigh of relief—at least for now.

But for Georgia-based employers, it’s important not to get lulled into a sense of false security. For anyone using employment agreements containing restrictive covenants, such as non-competes and non-solicitation provisions, those agreements must still comply with Georgia’s Restrictive Covenants Act (O.C.G.A. §§ 13-8-50 – 13-8-59). That means employers must stay aware of changes in judicial interpretations of the Act, something that happened recently when the Georgia Supreme Court weighed in on the reasonableness of geographic limitations in a non-solicit provision.

Last year, in North American Senior Benefits, LLC v. Wimmer et al., the Georgia Court of Appeals affirmed a lower court’s ruling that said NASB could not enforce an employee non-solicit covenant because the particular provision at issue lacked an explicit geographic limitation. This went against the longstanding belief that some restrictive covenants did not need to contain an explicitly defined geographic limitation to be deemed “reasonable” because O.C.G.A. 13-8-53(a) was silent on that requirement. Recently, however, the Georgia Supreme Court unanimously reversed the Court of Appeals’ opinion by holding that an employee non-solicit covenant does not need to contain an explicit geographic limitation to be considered “reasonable” in terms of “geographic area,” as required by the Act.

Instead, the Court held that the Act only requires the “geographic area” in question to be “reasonable,” remanding the case back down to the Statewide Business Court to “assess whether the provision’s geographic scope is reasonable in light of the totality of the circumstances including, but not limited to, the total geographic area encompassed by the provision, the business interests justifying the restrictive covenant, the nature of the business involved, and the time and scope limitations of the covenant.” In other words, the Georgia SC called for a fact-intensive inquiry into the reasonableness of the restriction.

This development is important for two reasons:

  1. Read broadly, it appears that this ruling may not be limited specifically to employee non-solicitation covenants—the reasoning used by the Court could also potentially apply to non-competition covenants covered by the Act. But it’s worth reminding employers that having express geographic limitations will help maximize the likelihood of enforceability by a court.
  2. With the FTC’s non-compete rule on pause for the time being, this case reminds us that state distinctions and nuances in restrictive covenant laws will still be in control. For those Georgia-based employers that have a multi-state presence, it’s always important to understand how the laws in states where your employees reside will impact those workers.

For example, California, North Dakota, Oklahoma, and Minnesota have complete prohibitions on non-competes, so using the same Georgia employment agreement for employees in those states is likely going to require the removal of any non-compete language.

Further, certain states like California have found that even non-solicitation provisions, if not written narrowly enough, could theoretically be construed by a court as a de facto non-compete and thus an unenforceable restraint on trade.

While non-solicitation provisions are generally viewed as being a less onerous burden on employees, some states, like Colorado and Washington, have set minimum salary thresholds for even these types of covenants to be enforceable (with some states taking similar approaches for non-competes).

So, what can you do in this ever-evolving landscape of restrictive covenant laws?

  1. Speak with an employment attorney and discuss your multi-state presence to make sure you’re best protecting your business while not inadvertently using unenforceable agreements.
  2. Revise your current agreements as needed based on employee location and the applicable state-specific nuances governing non-competes and non-solicitation provisions (not to mention confidentiality and trade secret issues).
  3. Consider whether having a non-compete and/or non-solicit covenant in your employment agreement is truly serving the purposes you need it to.

While it makes practical business and legal sense to have a restrictive non-compete and non-solicit of clients and employees for mid-level management positions, this may not be the case for those employees with no client-facing role and limited access to trade secrets and/or confidential information.

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