On September 4, 2024, the Supreme Court of Georgia unanimously ruled in North American Senior Benefits, LLC v. Wimmer et al., No. S23G1146 (Ga. 2024) that certain restrictive covenants need not contain an explicit geographic limitation to be deemed geographically reasonable within the meaning of the Georgia Restrictive Covenants Act (“GRCA”). The landmark decision significantly relaxes the requirements for drafting an enforceable nonrecruitment covenant and defers the enforceability of such covenants to a fact-specific inquiry.
The case derives from petitioner North American Senior Benefits, LLC (“NASB”)’s efforts to enforce restrictive covenants contained in employment contracts with its former insurance agents Ryan and Alisha Wimmer. Last year, the Court of Appeals of Georgia affirmed the Statewide Business Court’s ruling that NASB’s employee non-solicitation covenants were unenforceable due to their lack of an express geographic term. The Court of Appeals adopted the holding of CarpetCare Multiservices v. Carle, 347 Ga. App. 497 (819 S.E.2d 894) (2018), which held as void and unenforceable a customer no-service provision lacking an express geographic restriction.
The Georgia Supreme Court reversed the Court of Appeals’ decision and likewise disapproved of CarpetCare. Looking to what it referred to as the “plain text” of O.C.G.A. § 13-8-53(a), the Court explained that subsection (a) contains no requirement that a restrictive covenant contain an explicit geographic term, but rather only requires that an express or implied geographic term, if included, must be reasonable. Wimmer at 11–12. Further, the Court construed subsection (c)—which refers to circumstances “whenever a description” of geographic areas is required—to necessarily imply “that there are times when one is not required.” Id. at 14.
Given this analysis of the GRCA’s text and context, the Court concluded that the Court of Appeals’ decision impermissibly imposed a stricter standard than that enacted by the Georgia legislature. Id. at 15. Moreover, the Court acknowledged that the GRCA generally favors judicial interpretation and reshaping of noncompliant restrictive covenants over findings of per se invalidity. Id. at 16. The Court instructed that, on remand, the Statewide Business 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.” Id. at 18–19.
The question certified by the Georgia Supreme Court in Wimmer was limited to whether the GRCA requires an employee non-recruit to have an explicit geographic limitation to be reasonable. However, the discussion in the opinion raises interesting questions about how courts should analyze territorial limitations in other covenants.
Many organizations likely revised their covenant agreements for employees in Georgia to add a territory to the employee nonrecruitment covenants after the Court of Appeals’ decision, as it had been understood that a territory was not required for such a covenant to be reasonable. Now, given the Georgia Supreme Court’s reversal, companies can consider revisiting those changes.
If you have questions as to how you or your business should react to the Georgia Supreme Court’s decision, please reach out.
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.
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.
Alyssa brings an instinct to advocate for those in business. A legal extraordinaire with a creative flair, Alyssa draws from her innovative mindset to create tailored solutions for clients. At BFV, Alyssa counsels clients through diverse business challenges and disputes, including business and real estate litigation and labor and employment and noncompete matters.
