I am still catching up on the backlog of developments, but I am now turning to restrictive covenant law (noncompetes, nonsolicits, no-recruit agreements, etc.), trade secret law, and related issues updates outside of Massachusetts.
Today’s update involves a case changing the law of no-recruit agreements (i.e., employee nonsolicitation agreements) in Georgia.
Executive Summary
Some states apply the same requirements to no-recruit agreements that they apply to noncompetes. Other states do not. And, some states are inconsistent, while other states don’t even have a developed body of case law addressing no-recruit agreements.
But recently, Georgia, which had appeared to go one way, made an abrupt about-face. Specifically, Georgia reversed some (troubling) decisions out of the state trial court and Court of Appeals that held that no-recruit agreements need to expressly include a territorial restriction. Those holdings are no more.
No express territorial restriction is required for no-recruit agreements
On September 4, 2024, the Georgia Supreme Court considered whether no-recruit agreements (referred to in the case as a “non-recruitment provision”) are subject to the same requirements as those applicable to noncompete agreements under the Georgia’s restrictive covenant statute, OCGA §§ 13-8-50 – 13-8-59, specifically, section 13-8-53 (“enforcement of contracts that restrict competition during the term of a restrictive covenant, so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities, shall be permitted”).
Reversing the holdings of the trial court and Georgia Court of Appeals, the Georgia Supreme Court determined in North American Senior Benefits, LLC v. Wimmer that no geographic restriction was required for a no-recruit agreement.
The court reasoned as follows:
Our review of this issue of statutory construction — a question of law — is de novo. In our search for statutory meaning, “we must give the text its plain and ordinary meaning, view it in the context in which it appears, and read it in its most natural and reasonable way.” And though our focus here is on the meaning of OCGA § 13-8-53 (a), “[w]e do not limit our consideration to the words of [that subsection] alone.” Instead, we apply the “basic rule of construction that a statute should be construed to make all its parts harmonize and to give a sensible and intelligent effect to each part, as it is not presumed that the legislature intended that any part would be without meaning.”
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[A]s we have explained before, statutory text is not properly read in a vacuum but, instead, must be considered in light of the surrounding text and the statute’s broader context because “context is a primary determinant of meaning.”
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We turn first to subsection (a)’s plain text, which, as always, must be the north star of our analysis. Read as a whole, subsection (a) establishes a general standard of enforceability for “contracts that restrict competition during the term of a restrictive covenant” and specifically requires that “such restrictions” be “reasonable in time, geographic area, and scope of prohibited activities.” From the use of the conjunctive “and,” it is clear that a restrictive covenant must comply with all three statutory bases in order to be enforceable. As to geographic reasonableness in particular, nothing in the text of subsection (a) mandates that a restrictive covenant contain an explicit geographic term, nor does subsection (a) prohibit a covenant’s geographic area from being expressed in implied terms. In short, the plain text of subsection (a) requires with respect to geographic restrictions on competition that any such restriction be reasonable, regardless of whether the restriction is expressly stated or implied. . . .
Several contextual considerations underscore this conclusion. First, other provisions of the GRCA separately address how restrictions contained in restrictive covenants should be described. . . . Importantly, the statute is clear that a “description” of a restrictive covenant’s “geographic area” is not always required. Subsection (c)’s guidelines apply “[w]henever a description of activities, products, or services, or geographic areas is required by this Code section.” Thus, by referring to a subset of circumstances in which a description of geographic area is required, the statute necessarily implies that there are times when one is not required. By construing subsection (a) to require an express geographic description in all circumstances, the Court of Appeals imposed a stricter standard than that imposed both by the plain text of subsection (a) and in the context of subsection (c).
Looking to the broader statutory context, the GRCA plainly contemplates that a restrictive covenant’s geographic scope can be described in ways that do not involve geographic terms. For example, under OCGA § 13-8-56 (2), the geographic scope of a restrictive covenant is presumed reasonable if, among other things, it “includes the areas in which the employer does business at any time during the parties’ relationship” and “contains a list of particular competitors as prohibited employers for a limited period of time.” The restrictive covenant here does something similar. Instead of listing employers that the [Defendants] may not work for, it names the employer — [Plaintiff] — that the [Defendants] may not recruit employees from, and it confines that restriction to a limited period of time — two years — after the employment relationship between [Plaintiff] and the [Defendants] ended. It would be oddly incongruous to conclude that the non-recruitment provision, though stated in similarly narrow terms as covenants deemed presumptively reasonable in geographic area under OCGA § 13-8-56, is categorically unreasonable because it lacks an express geographic term.
Our reading of OCGA § 13-8-53 (a) likewise comports with the GRCA’s “more permissive and flexible approach to restrictive covenants.” And our rejection of the requirement read into the statute by the Court of Appeals is consistent with the GRCA’s stated purpose “to provide statutory guidance so that all parties to [restrictive covenants] may be certain of the validity and enforceability of such provisions and may know their rights and duties according to such provisions.” OCGA § 13-8-50.
Finally, our reading of the statute accords with the decisional law that is the backdrop of the GRCA, pursuant to which a restrictive covenant’s reasonableness was assessed in light of its duration, territorial coverage, and scope of activity and which recognized that “[r]equiring an express geographic territorial description in all cases is not in keeping with the reality of the modern business world in which an employee’s ‘territory’ knows no geographic bounds.”
Of course, by omitting any express geographic description entirely, the implied provision in question here could be read in one of two ways. [Plaintiff] suggests that, because it is an employee non-recruitment provision, it should be considered to have a geographic scope aligned with the current homes and places of employment of the covered employees. Alternatively, the absence of any described geographic boundary could be understood to give the provision global or universal effect with respect to geographic application. This sort of distinction is irrelevant because, in any event, the analysis remains the same under OCGA § 13-8-53 (a). The trial court must assess whether the 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 restrictive covenant, the nature of the business involved, and the time and scope limitations of the covenant. And here, that question boils down to whether, in light of all the circumstances, it was reasonable to prohibit the [Defendants] from recruiting for employment any [Plaintiff] employee regardless of the employee’s location for the term of the covenant.
In sum, OCGA § 13-8-53 (a) means what it says — to be enforceable, a restrictive covenant must be “reasonable in time geographic area, and scope of prohibited activities.” Whether a given covenant is reasonable in geographic area under subsection (a) is not dependent on whether its geographic scope is expressly stated but, rather, on the facts and circumstances of the case, as measured by the requirements of the GRCA. Accordingly, we reverse the judgment below and remand this case to the Court of Appeals. On remand, the Court of Appeals is directed to reverse the Business Court’s judgment and remand the case to that court, so that it may in the first instance assess whether the restrictions of the non-recruitment provision are “reasonable” under subsection (a).
(Citations omitted.)
Instructively, the Georgia Supreme Court’s analysis seems to open the door to implied geographical restrictions for all restrictive covenants, not just no-recruit agreements. (Per my shout out below, Ben Fink, Neal Weinrich, and Alyssa Gill raised this issue in their post, which is worth a read.) Nevertheless, as I think they would agree, common sense would suggest that the more clearly and narrowly all restrictions are drafted, the more likely they are to be enforceable — notwithstanding the 11th Circuit’s approval of the reformation approach (incorrectly called the “blue-pencil” approach).
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Firm resources:
We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF) (to be updated for the new exemptions in Illinois and Pennsylvania);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
We hope you find all of these resources useful. More are coming.
And please note, we are grateful for all of the input we’ve received over the years. We welcome any suggestions for improvements that you may be willing to share.
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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the recent noncompete and trade secret caselaw developments. And a shout out to Ben Fink, Neal Weinrich, and Alyssa Gill for calling out the Georgia case.