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September 14, 2023
Parties to a contract sometimes select the law of a certain jurisdiction to govern their contract (i.e., a choice-of-law provision). Georgia courts generally will honor that choice of law unless applying the law of the foreign jurisdiction would violate Georgia’s public policy. For many years, Georgia courts have used the public policy exception to decline to apply the law of a foreign jurisdiction to enforce restrictive covenants, like non-competition agreements.
In a recent case, two motorcycle dealerships in Georgia sought to enforce a restrictive covenant against a former employee under Florida law. Motorsports of Conyers, LLC v. Burbach, Civ. Action No. S22G0854, 2023 Ga. LEXIS 187 (Ga., Sept. 6, 2023). The dealerships asked Georgia’s Supreme Court to reconsider its application of the public policy exception in light of recent changes in Georgia law supporting a more flexible and permissive approach to enforcing restrictive covenants.
Background of the Case
Edmund Burbach worked for a group of six Harley-Davidson dealerships under common ownership. When they promoted Burbach to Chief Operating Officer, Burbach signed an employment agreement with two of the dealerships. The employment agreements contained identical non-competition provisions that prohibited Burbach, during his employment and for three years after it ended, from working for a competitor within 120 miles of any of the six dealerships. The agreements also provided for the application of Florida law.
When Burbach’s employment with those dealerships ended, he began working for a competitor less than 20 miles away. The dealerships sued to enforce the non-competition provisions. The trial court applied Florida law and enforced the non-competition provisions. The appellate court applied Georgia law and reversed. The Georgia Supreme Court granted review to clarify the framework for deciding whether to honor a parties’ choice of law to govern the enforceability of a restrictive covenant in an employment contract.
The Analysis of Georgia’s Supreme Court
The Georgia Supreme Court first noted that, with respect to restrictive covenants, Georgia public policy is set by statute. Specifically, pursuant to the Georgia Restrictive Covenant Act (GRCA), contracts “in general restraint of trade,” including restrictive covenants that are unreasonable in scope, duration, or geographic reach, are against the public policy of the state.
The Court next noted that the GRCA reflects a permissive and flexible approach to restrictive covenants. For example, the GRCA instructs courts to construe restrictive covenants “in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement.” See OCGA § 13-8-54(a). Furthermore, it expressly allows blue-penciling, meaning that, if a court concludes that a restrictive covenant violates Georgia law as written, the court may modify it and grant only the relief necessary to protect legitimate business interests and achieve the original intent of the parties. See OCGA § 13-8-54(b). However, the GRCA preserved the understanding that restrictive covenants that do not comply with the statute are unlawful, void, unenforceable, and, therefore, against public policy.
Georgia’s Supreme Court ultimately concluded that Georgia law remains the benchmark to determine whether a restrictive covenant is enforceable in Georgia, even when the parties have contracted for application of another state’s law. Thus, to determine whether applying another state’s law to a restrictive covenant would violate Georgia’s public policy, a Georgia court first must determine whether the restrictive covenant complies with the GRCA. If it does, the court can honor the parties’ choice-of-law provision and apply the other state’s law to determine whether to enforce the restrictive covenant. If it does not comply with the GRCA, then the court cannot apply the other state’s law. Instead, Georgia law would govern the contract.
The Court remanded this case to the lower courts to render a decision consistent with this established framework.
Employer Takeaways
Review your restrictive covenants for Georgia employees and ensure that they comply with Georgia law in terms of scope, duration, and geographic reach. You cannot escape Georgia law in the enforcement of restrictive covenants even if you contractually agreed that another jurisdiction’s law would apply.
The author of this article, Patricia Tsipras, is a member of the Bar of Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Georgia, Florida, Pennsylvania, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
