Antitrust Law Daily Wrap Up, TOP STORY—GaCtApp: Covenants Restricting Former Employee Were Unreasonable Under Georgia Law, (Nov 27, 2012)

By Jeffrey May, J.D.

Restrictive covenants contained in an agreement between a Florida company that provided technical staffing services to clients in the defense industry and a former high-level employee violated Georgia law, a Georgia appellate court has ruled. Although a forum selection clause in the agreements between the parties called for the dispute to be litigated in Florida, the employee's suit should not have been dismissed by a lower court based on that clause. The forum selection clause was not honored because the restrictive covenants violated Georgia public policy and a Florida court likely would have enforced them (Carson v. Obor Holding Co., LLC, November 20, 2012, Branch, E.).

The covenants could not be considered “reasonable” restraints on competition, the court ruled. A non-disclosure covenant was overly broad because it purported to bind the employee “in perpetuity,” and it failed to define the “confidential information” that was within its scope.

A nonsolicitation covenant violated Georgia law for at least two reasons, according to the court. First, it neither limited its restrictions to those clients with whom the employee had had a business relationship nor contained a territorial restriction. Second, it barred the employee not only from soliciting any client or prospect of the employer, but also from accepting any work from clients or prospects who initiated contact with the employee.

Lastly, a covenant not to compete was prima facie unreasonable because it restricted activity in the entire country, the court ruled. It contained no legitimate territorial restriction. Moreover, the clause was overbroad because it effectively barred the employee from working in any capacity for, owning any interest in, or serving on the board of any competitor of the employer. The restrictions were far broader than necessary to protect the employer’s legitimate business interests, in the court’s view.

The court considered the covenants in the context of the law as it existed before an amendment to the state constitution in 2010. As a result of that constitutional amendment, Georgia enacted new statutory provisions governing restrictive covenants in employment contracts.

Enforcement of the forum selection clause would likely have resulted in a violation of Georgia’s then-existing public policy against certain agreements in partial restraint of trade. It was likely that a Florida court would enforce the forum selection clause and, applying Florida law, uphold the covenants, despite the fact that they violated applicable Georgia law. Even if the covenants were blue-penciled to make them comply with Florida law, there was a strong likelihood that they would still violate Georgia law, the court decided. Therefore, dismissal of the complaint was reversed.

The case is A12A0891.

Thomas J. Gallo for Alan Carson. Richard Gardner Tisinger, Jr. (Richardson Gardner & Alexander) for Obor Holding Company, LLC.

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