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September 18, 2024
Last year, we reported on a decision of the Georgia Court of Appeals in North American Senior Benefits, LLC v. Wimmer, where the court held that an employee non-solicitation provision must contain a geographic limitation to be enforceable under Georgia’s Restrictive Covenant Act. Last week, the Supreme Court of Georgia reversed that decision. See North American Senior Benefits, LLC v. Wimmer, No. S23G1146, 2024 Ga. LEXIS 188 (Sept. 4, 2024).
Factual Background
North American Senior Benefits, LLC (NASB) is an independent marketing organization operating in the insurance industry. Alisha and Ryan Wimmer worked as insurance agents for NASB. Their independent contractor agreements contained restrictions that prevented them, during the terms of their contracts and for two years following the termination of those contracts, from employing any employees of NASB.[1] The Wimmers terminated their contracts with NASB in June 2021 and formed Freedom & Faith, Inc., which also operates in the insurance industry.
NASB filed suit against the Wimmers and Freedom & Faith, alleging violations of the employee non-solicitation restriction. The Wimmers and Freedom & Faith asserted class action counterclaims, including seeking a declaration that the employee non-solicitation restriction was invalid and unenforceable.
Procedural Background
Georgia’s statewide business court found that the employee non-solicitation restriction in the NASB contract was void and unenforceable as applied to the Wimmers’ post-contract conduct because the restriction contained no territorial limitation. NASB appealed. The Court of Appeals affirmed. NASB appealed again. The Supreme Court of Georgia reversed the Court of Appeals and remanded the case for further proceedings.
Analysis of the Georgia Supreme Court
Georgia’s Restrictive Covenant Act (Act) governs the employee non-solicitation restriction in the Wimmers’ contracts with NASB. Under the Act, no provision that restricts competition can be enforced unless it is “reasonable in time, geographic area, and scope of prohibited activities.” See OCGA § 13-8-53(a).
In reversing the Court of Appeals, the Supreme Court of Georgia held that nothing in the text of subsection (a) mandates that a restrictive covenant contain an explicit geographic term, nor does it prohibit a covenant’s geographic area from being expressed in implied terms.
The Court concluded that the NASB contract did contain a geographic limitation – in implied terms. “Instead of listing employers that the Wimmers may not work for, it names the employer – NASB – that the Wimmers may not recruit employees from, and it confines that restriction to a limited period of time – two years – after the employment relationship between NASB and the Wimmers ended.”
Accordingly, the Court directed the business court to assess on remand whether the non-solicitation 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 provision, the nature of the businesses involved, and the scope of provision’s limitations.
Employers: This case involved an employee non-solicitation provision. However, its reasoning may be applied to other types of restrictive covenants, like customer non-solicitation provisions and even non-competition provisions. If a restrictive covenant is limited in geographic scope – even if such limitation is implied – it likely will withstand scrutiny under Georgia law if it is necessary to protect a legitimate business interest and is limited in time and subject-matter scope.
Special thanks to Kayla Olsen, our intern, for her contributions to this article.
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 Pennsylvania, Georgia, 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.
[1] The restriction in the NASB contract reads as follows:
Non-Solicitation of Employees and Independent Contractors: During the term of the Licensed Agent’s contract with NASB and for a period of two (2) years following termination of said contract, Licensed Agent shall not, directly or indirectly: (a) solicit for the provision [of] services or employment any employee, agent or independent contractor of NASB, (b) advise or recommend to any other person that they employ or solicit for provision of services any employee or independent contractor for NASB, (c) encourage or advise such employees, agents or independent contractors to sever, discontinue or not renew any agreement or relationship to NASB, or (d) otherwise establish or seek to establish any business relationship with any such employee, agent or independent contractor related to the sale of insurance products.
