We have been reporting regularly on the Georgia Court of Appeals decision in Burbach v. Motorsports of Conyers, LLC, 363 Ga. App. 188 (2022). Now, the Georgia Supreme Court confirmed that Georgia courts are not to apply foreign law to noncompetes in Georgia if applying the foreign state’s law violates Georgia public policy.
Changes in 2011 made Georgia noncompete law and public policy more friendly to employers seeking to enforce restrictive covenants. Some practitioners thought these changes meant trial courts should more freely enforce choice of law provisions. However, in its latest decision, the Georgia Supreme Court held otherwise. Justice Pinson emphasized that “Georgia law remains the touchstone for determining whether a given restrictive covenant is enforceable in our courts.”
In Motorsports of Conyers, LLC v. Burbach, 892 S.E.2d 719 (Ga. 2023), the trial court enforced a Florida choice-of-law provision in entering an injunction to enforce a noncompete in an employment contract for an employee that worked in Georgia. Notably, the trial court did so without first determining whether the restrictive covenants complied with the Georgia Restrictive Covenants Act.
The Georgia Court of Appeals reversed and determined that a Florida choice of law provision should be disregarded. This was based on Georgia public policy that requires courts to apply Georgia law to restrictive covenant agreements in Georgia. The court found the noncompete unenforceable for several reasons. These included an unreasonable duration, ambiguous activity ban, and expansive geographical restriction. The Georgia Supreme Court then granted certiorari.
The Georgia Supreme Court held instead that Georgia courts’ first step is to determine whether the restrictive covenant complies with the GRCA before determining whether to apply the foreign choice-of-law provision.
If a restrictive covenant is reasonable under the GRCA, the court may honor and apply the foreign choice-of-law provision. Reasonableness includes scope, duration, and geographic reach. If a restrictive covenant is unreasonable under the GRCA, Georgia courts cannot apply foreign law and must instead apply Georgia law.
Where the restrictive covenant is unreasonable under the GRCA and Georgia law thus applies, the covenant may still be salvageable through the GRCA’s blue-penciling provision. This part of the statute gives courts discretion to blue-pencil restrictive covenants. Thus, a court that finds a restrictive covenant unenforceable may be able to modify the noncompete to make it enforceable. Of course, this is subject to the limitations on modification provided in the statute.
The Georgia Supreme Court in Burbach did not address the precise parameters of the trial court’s authority to blue pencil. In a footnote, the Court insinuated that an argument could be made that blue penciling under the GRCA is mandatory. However, it ultimately left this issue for another day.
Many Georgia employers frequently hire employees in Georgia from competitors with out-of-state headquarters. Those employment agreements often contain choice-of-law provisions calling for another state’s law to govern. The Supreme Court’s decision sheds light on how employers should analyze those provisions.
Similarly, employers located out-of-state with employees in Georgia should be mindful that trial courts must scrutinize restrictive covenants under Georgia law. Georgia trial courts will not apply a foreign choice-of-law provision if the restrictive covenant is unenforceable under Georgia law and public policy. This is true even if the restrictive covenant would be enforceable under another state’s laws. At best, a court may blue pencil an otherwise unenforceable restrictive covenant.
Employers should consult with legal counsel to make sure the noncompetes they are using with employees in Georgia comply with Georgia law and public policy. Please let us know how we can help.