In Baldwin v. Express Oil Change, LLC, 87 F.4th 1292 (2023), the Eleventh Circuit Court of Appeals addressed some key issues under the Georgia Restrictive Covenants Act. The case involved a former executive of Express Oil Change who had received nearly $2 million from a sale of the company.
Time Limit
The executive argued the 2-year presumption of reasonableness as to the time limitation for a restrictive covenant applicable to employees applied to him. The district court agreed, but the Eleventh Circuit reversed finding the executive was a “seller” under O.C.G.A. §13-8-57(d).
Under the statute, a “Seller” is defined as:
“[a]n owner of a controlling interest [25%], their “affiliate,” or “an executive employee of the business who receives, at a minimum, consideration in connection with a sale.” O.C.G.A. §13-8-51(4).
Baldwin was a manager, so he was an executive employee. O.C.G.A. §13-8-51(7). And, he received “consideration in connection with [the] sale” of the assets. O.C.G.A. §13-8-51(17)(B). The Eleventh Circuit rejected the district court’s holding that “all or a material part” refers to the executive’s stake in the sale, rather than referring to the sale itself. Because the sale was “of all or a material part of … [t]he assets of a business” and Baldwin was an executive who received significant consideration, the longer 5-year reasonableness presumption applicable to a covenant in connection with the sale of a business applied.
Geographic Scope
Next, the Court addressed the geographic scope of the noncompete. The noncompete applied in Georgia, Alabama, and within a 5-mile radius of any automotive repair or service facility business operated by the company. However, the employee oversaw 18 Georgia-based stores while the company operated 1100-1200 stores across 29 states.
The district court “blue-penciled” the geographic reach in two ways: (a) it eliminated Georgia and Alabama; and (b) it limited the prohibition to only within five miles of locations the employee managed. The Eleventh Circuit affirmed, holding that the five-mile radius of any location of the company did not satisfy any of O.C.G.A. §13-8-56(2)’s three prongs. It did not contain a list of competitors, and the total distance encompassed by the noncompete was not reasonable.
Rather, the Court found, the legitimate business interest supporting the noncompete was in “preventing Baldwin from luring away its technicians and customers.” Therefore, the company lacked a legitimate business interest in restricting him outside his prior service area. As a result of the mismatch between the company’s interests and the scope of the geographic restrictions, the “total distance encompassed” by the noncompete was not “reasonable.”
Blue-Penciling
As for blue-penciling, the Court held that the blue-pencil can write in words when the covenant contains a territory, if the result is to narrow the geographic reach of the covenant. As such, even though the district court wrote in words when it “blue-penciled” the noncompete, the Eleventh Circuit affirmed the modifications below.
Baldwin covenants and agrees that, from the Effective Date hereof until the forty-eighth (48) twenty-fourth (24) month anniversary of the date hereof (the “Term”), he will not directly or indirectly (through an entity), engage in, invest in, become an owner of, advise, or become a landlord and/or lender of, or employed by, or construct a facility for an automotive repair or service business (other than Purchaser, if Baldwin and Purchaser agree for Baldwin to become an employee of Purchaser) which promotes as one or more of its services any form of retail sales of new tires and/or tire-related services, tire rotation, balancing and alignment, oil change services, quick lube services, brake repair or replacements services, transmission repair or service, automotive repairs or similar service (a “Competitive Business”), and which business is located (i) in the State of Georgia or the State of Alabama, or (ii) within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser that Baldwin previously oversaw while he was overseeing Purchaser’s franchises.
This decision contains some important clarifications of the Georgia Restrictive Covenants Act that should be considered when drafting and litigating these agreements.
Please let me know if you would like to discuss the Georgia Restrictive Covenants Act further.
Benjamin Fink is known for his work in noncompete, trade secret and competition-related disputes. A shareholder at Berman Fink Van Horn, Ben concentrates his practice in business and employment litigation.
