The Legal
| Jurisdiction | Georgia,United States |
| Citation | Vol. 26 No. 2 Pg. 0016 |
| Pages | 0016 |
| Publication year | 2020 |
The Legal
Nearly a Decade Later: Surveying Georgia’s “New” Noncompete Law
This article discusses the flurry of decisions issued by the Court of Appeals of Georgia providing guidance on the “new” noncompete law, as well as several opinions of significance from the federal judiciary.
BY NEAL F. WEINRICH AND ASHLEY M. BOWCOTT
Georgia historically disfavored covenants not to compete and other restrictive covenants, particularly in the employment context.[1] This hostility was rooted in Georgia's Constitution, which provided that all contracts that had the effect of or were intended to defeat or lessen competition or encourage monopolies were illegal and void.[2]
In the mid-2000's, members of Georgia's business community started lobbying for revisions to Georgia's restrictive covenant law. A legislative committee studied the issue and concluded that a change in the law would help keep businesses in Georgia, as well as attract new businesses. The committee recommended that the General Assembly enact legislation revising Georgia's restrictive covenant law, which it did in 2009.[3] However, that law could not take effect until a referendum amending Georgia's Constitution passed.[4] In November 2010, the voters approved a referendum.[5] Because there were questions about the validity of the law—since the law took effect before the constitutional amendment allowing the law had technically taken effect—the Georgia General Assembly reenacted the legislation in substantially the same form.[6] The reenacted legislation took effect on May 11, 2011 (the “Act”), drastically changing restrictive covenant law in Georgia in many ways. Perhaps the most notable change is that Georgia courts can now modify unreasonable restraints.
The Act does not apply to contracts signed before the new law took effect.[7] Therefore, shortly after the Act's passage, many noncompete disputes still involved covenants governed by Georgia's common law. Over time, however, many Georgia employers implemented new restrictive covenant agreements, and more and more disputes involve covenants governed by the Act. Although it took longer than many expected to see appellate case law interpreting the Act, in the last few years the Court of Appeals of Georgia has issued a flurry of decisions providing guidance on the Act. This article discusses those decisions as well as several opinions of significance from the federal judiciary.
Who can be subject to a noncompete under the Act?
Although the drafters of the Act set out to make noncompetes and other restrictive covenants easier to enforce, they were also cognizant that not all employees should be subject to post-termination noncompetes. In striking this balance, the Act only allows post-termination noncompetes with employees who:
(1) [c]ustomarily and regularly solicit for the employer customers or prospective customers;
(2) [c]ustomarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others;
(3) [p]erform the following duties:
(A) [h]ave a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
(B) [c]ustomarily and regularly direct the work of two or more other employees; and
(C) [h]ave the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or
(4) [p]erform the duties of a key employee or of a professional.[8]Although the drafters of the Act set out to make noncompetes and other restrictive covenants easier to enforce, they were also cognizant that not all employees should be subject to post-termination noncompetes.
Although executives, high-level managers and true salespeople clearly seem to come within the reach of the Act, the Act leaves substantial room for disagreement about whether noncompetes are allowed for many other types of employees. This section of the Act is also rife for over-zealous employers using noncompetes against employees whom the General Assembly did not intend to be subject to noncompetes. The Court of Appeals of Georgia's recent decision in Blair v. Pantera Enterprises, Inc., illustrates such a situation.[9] Blair worked for Pantera as a backhoe operator and laborer, and he primarily provided services to Pantera's customer, Norfolk Southern, in a specific territory. Blair signed a noncompete with Pantera that prohibited him from operating a backhoe on railways owned or leased by Norfolk Southern for two years after his employment ended. He made $13 an hour, did not have authority to hire or fire people, did not regularly direct the work of anyone other than his truck driver, was not involved in sales and was not involved in negotiating contracts with Norfolk Southern.
In 2017, Blair left Pantera to work for a competitor where he would be paid $20 an hour. Norfolk Southern redirected its track maintenance business to Blair's new employer because Norfolk Southern felt it could not find a suitable replacement for him. Pantera filed suit and argued that by virtue of his reputation and training, Blair was a “key employee” under O.C.G.A. Section 13-8-53(a)(4) who could be subject to a noncompete. The trial court accepted Pantera's argument and enjoined him from operating a backhoe for Norfolk Southern in the relevant territory for the two-year period.
On appeal, the Court of Appeals of Georgia held that to interpret O.C.G.A. Section 13-8-51(8) (which defines “key employee”) to include an employee like Blair “would create an unintended restriction on trade and run counter to the balance the legislature sought to create by limiting the application of the [A]ct.”[10] The court held that the phrase “key employee” was not meant to include every employee. Rather, according to the court, both sentences of O.C.G.A. Section 13-8-51(8) must apply for an employee to be a “key employee.” The legislature's intent to limit the coverage of the Act to certain employees would be frustrated if the court construed O.C.G.A. Section 13-8-51(8) to mean that any person in possession of selective or specialized skills, learning or abilities obtained by reason of having worked for an employer, who would already be considered an “employee” under O.C.G.A. Section 13-8-51(5), would also be a “key employee.” Analyzing whether Blair met the first sentence of O.C.G.A. Section 13-8-51(8), the court held that even if his good reputation with Norfolk Southern was sufficient for him to have a “high level of notoriety, fame, reputation, or public persona as the employer's representative,” he would be a key employee only if that level of notoriety, fame, reputation or public persona was gained “by reason of the employer's investment of time, training, money, trust, exposure to the public, or exposure to customers, vendors, or other business relationships during the course of the employee's employment with the employer.”[11] Although Blair was Norfolk Southern's preferred backhoe operator, it was because of his positive attitude, reliability and proficiency from his own work ethic and personal attributes, not by reason of Pantera's investment in him. Therefore, he was not a key employee under the Act, and the court vacated the trial court's injunction.[12]
The analysis in Blair is limited to what constitutes a “key employee.” Two other decisions, one from the Court of Appeals of Georgia and one from the Northern District of Georgia, address the other prongs of O.C.G.A. Sections 13-8-53(a)(1)-(4).
Kennedy v. The Shave Barber Co., LLC involved a dispute over a hair stylist's noncompete and non-solicits.[13] After several employees left and opened competing barbershops, the owner of The Shave required its stylists, including Kennedy, to sign agreements containing a three-mile noncompete, a customer non-solicit and an employee non-recruitment covenant. Kennedy resigned and opened her own salon within the radius. She announced her resignation via social media and “tagged” The Shave in her post, so the post appeared on The Shave's social media. She also reposted photos taken at The Shave, tagging some of The Shave's customers. The Shave filed a lawsuit and obtained an injunction enforcing the restrictive covenants.
On appeal, Kennedy argued that she was not the type of employee against whom a noncompete could be enforced. She also argued she was not even an “employee” at all within the meaning of the Act. O.C.G.A. Section 13-8-51(5) defines an “employee” as including any person “in possession of selective or specialized skills, learning, or abilities or customer contacts, customer information or confidential information.” O.C.G.A Section 13-8-53(a)(1) permits noncompetes against employees who “customarily and regularly solicit for the employer customers or prospective customers.” While employed, Kennedy regularly posted her work schedule and a link to The Shave's website to her social media accounts, she encouraged clients and potential clients to patronize The Shave, and she posted photographs of services she provided and tagged The Shave in her posts. She provided services to 230 repeat customers per month. Based on this evidence, the Court of Appeals concluded that the trial court was within its discretion to find that she was an “employee” that customarily and regularly solicited customers or prospects.
In CSM Bakery Solutions, LLC v. Debus, Judge Timothy C. Batten Sr. of the Northern District of Georgia also weighed in on what types of employees may be subject to a...
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