Georgia Supreme Court Gives Green Light To Enforcement Of No-Solicit Covenant
Although courts in Georgia have historically disfavored post-employment covenants that restrict the ability of former employees to engage in competitive activities, a recent ruling from the Georgia Supreme Court illustrates that employers can protect their customer relationships through a reasonable non-solicitation provision, even if it lacks a geographic restriction.
In Palmer & Cay v. Lockton Co., three former insurance brokerage employees left Savannah-based Palmer & Cay (which subsequently became part of Wachovia Insurance Services) to join Lockton, a competing company in Atlanta. The employees and Lockton then filed a declaratory judgment action to determine the enforceability of a post-employment non-solicitation clause in agreements the employees had signed with Palmer & Cay. Although the trial court and the intermediate appellate court both agreed with the employees that the covenant in question was unenforceable, the Georgia Supreme Court viewed the matter differently and distinguished its prior precedent.
The court focused on the question of whether the non-solicitation covenant was unenforceable due to the lack of any restriction placed on the period of time during which the employees had served Palmer & Cay's customers. The court held that a two-year post-employment restriction preventing former employees from doing business with customers that they served during their employment was enforceable despite the lack of a geographic limitation. In addition, the court rejected the former employees' argument that the customer no-solicit provision was overbroad and unenforceable because it applied to all customers with whom they had contact during the full terms of their employment.
In support of its ruling, the court noted that Palmer & Cay was seeking to protect its current customer relationships, not those with former customers, and explained: "The employer's recognized interest in protecting its customers is not diminished by the length of time since the employee may have ceased to serve the customer, but depends instead on the fact that the customer relationship was either established or nurtured by the employee. This is true because the risk that a former employee may take unfair advantage of personal contacts developed in establishing or nurturing the customer relationship still exists even after such direct and immediate contacts have ended."
In language that may be heartening to employers that hope to enforce protective covenants, the court also stated: "There is no legal basis for the judiciary to interfere in the affairs of the workplace, and to set aside a restrictive covenant which, for a reasonable two-year period, limits a former employee from engaging in the post-termination solicitation of any of his former employer's customers whom he personally served during his tenure of employment.."
It should be noted that, as is common in restrictive covenant cases, the court focused on the particular facts and circumstances, which in this instance involved three employees who had worked for Palmer & Cay for 5, 10 and 11 years, respectively, and who had "freely accepted" the provision that their employer had sought.
The lone justice who dissented from the majority's opinion also reiterated the case-by-case nature of the analysis in such disputes. "The reasonableness of the restriction is heavily dependent upon the facts and circumstances surrounding the case, and in determining reasonableness, consideration must be given to the employee's right to earn a living and the employee's ability to determine with certainty the area within which his or her post-employment actions are restricted," wrote Justice Hines in his dissenting opinion.
While assessing the same facts and circumstances as the majority, he nonetheless viewed the case from a different perspective, stating that the covenant at issue was "anything but narrow."
The Palmer & Cay v. Lockton ruling will now stand as additional precedent for courts in Georgia that are asked to analyze the enforceability of post-employment covenants, but it also may be useful in efforts to inform and persuade courts in other jurisdictions.
Schiff Hardin LLP