A federal district court in Georgia recently weighed in on the enforcement of a restrictive covenant agreement, reminding employers of both the power and the limits of such agreements.
The case, Access Pro Medical, LLC v. Hartman, involved Jordan Hartman, formerly employed as a senior territory manager in Colorado with Georgia-based medical sales company Access Pro Medical.
On his first day with Access Pro, Hartman signed an employment covenant agreement that included a non-solicitation provision, a forum selection clause requiring disputes to be brought in Georgia, and a Georgia choice-of-law clause.
After nearly a year, Hartman left the company to join Acera Surgical, Inc., a direct competitor. Shortly after, Access Pro observed Hartman working with two of its major clients and sent him a cease-and-desist letter.
When Hartman failed to comply, Access Pro filed suit in Georgia for breach of contract. Hartman responded by filing a separate action in Colorado, seeking to invalidate the agreement under Colorado law.
Access Pro amended its Georgia complaint, alleging that Hartman’s initiation of the Colorado lawsuit violated the agreement’s forum selection clause, triggering an additional breach.
Applying Georgia law, the court granted a preliminary injunction enforcing the non-solicitation covenant—albeit with modification—and enjoined Hartman from further proceedings in the Colorado case.
The Court’s Key Findings
In ruling on Access Pro’s motion for a preliminary injunction, the court made several key findings:
The court found the agreement valid under Georgia law. Although Hartman argued Colorado law should apply, the court upheld the agreement’s Georgia choice-of-law clause.
The court found that the agreement’s failure to comply with Colorado law did not render it void, because the agreement’s choice of law provision identified Georgia as the controlling law.
In the absence of a contractual choice of law provision, Georgia courts rely on the lex loci contractus principle to determine the applicable choice of law. Because the case was pending in federal district court in Georgia, the court applied Georgia’s choice of law rules. Further, Hartman failed to show that the agreement was otherwise void under Georgia law.
The court found that the agreement’s forum selection clause passed its “reasonable communicativeness” test, a two-prong test for non-negotiated forum selection clauses to evaluate whether the agreement was induced by fraud or overreaching.
Applying the test, the court looked at the clause’s physical characteristics, finding that the forum selection clause was in identical typeface as the rest of the agreement, underneath the underlined “Governing Law” subheading; the contents of the agreement were broken into visually distinct paragraphs; and the language of the clause itself was clear and straightforward.
The court also reviewed whether Hartman had sufficient “time and opportunity to become meaningfully informed of the forum selection clause” and to reject its terms.
The agreement contained a provision subtitled “Advice of Counsel” which provided that the employee may wish to seek independent legal advice before accepting the agreement terms. The court found that Hartman’s initial on every page of the signed agreement indicated that he reviewed and was aware of the full agreement’s terms, and there was no evidence he was denied the chance to seek legal counsel.
As for the alleged breach, the court relied on circumstantial evidence, including Hartman’s continued work with Access Pro clients and his declaration in which he did not deny breaching the agreement.
Perhaps surprisingly, the court also relied on his attempt to invalidate the agreement by initiating the Colorado litigation as circumstantial evidence of his breach. This was enough to establish a likelihood of Access Pro’s success on the merits.
The court also modified the non-solicitation provision to narrow the injunctive relief to prohibit solicitation with only those customers with whom he had material contact during the year prior to his termination.
The court also took the unusual step of enjoining him from pursuing further proceedings in the Colorado litigation, based on the Georgia forum selection provision.
Takeaways for Restrictive Covenant Counsel
This decision is unusual in that the court relied on the former employee’s attempt to invalidate his restrictive covenants in a different jurisdiction as circumstantial evidence of his breach.
Employees often file declaratory judgment actions in restrictive covenant matters. Declaratory judgment plaintiffs seek such judicial guidance regarding the validity of their obligations to know whether breaching will expose them to potential liability. The filing of such an action may not necessarily be an indicator that a breach has occurred.
Nevertheless, restrictive covenant counsel contemplating initiating a declaratory judgment action should be mindful that former employers may rely on this decision to argue that the filing of the declaratory judgment is evidence supporting a request for injunctive relief in an enforcement action.
BFV helps companies protect themselves from unfair competition, providing guidance on the many issues that can arise when an employee joins a competitor. Please contact our Noncompete & Trade Secrets team with any questions.
Work hard at work worth doing. This is what drives Daniel Park in every aspect of his life. At Berman Fink Van Horn, Daniel demonstrates this in everything he does.
Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.
