Old Georgia Law Update: Enforceability of Non-Recruitment Covenants

Posted by Neal F. Weinrich on

Georgia’s old common law was extremely hostile to the enforcement of restrictive covenants, particularly non-competes. However, even under the old law, employee non-recruitment covenants were more freely forced. That said, there is some inconsistency in the Georgia appellate and federal court decisions which address the rules governing the enforceability of non-recruitment covenants. A recent case from the Georgia Court of Appeals, CMGRP, Inc. v. Gallant, 2017 WL 4400937 (Ga. App. Oct. 4, 2017), clarifies some of those rules.

In Gallant, a former employee received a cease-and-desist letter accusing her of violating her customer non-solicitation covenant and her employee non-recruitment covenant.  In response, she filed a declaratory judgment action seeking a ruling that the covenants were unenforceable. The trial court entered a cursory order granting the request for a declaratory judgment in its entirety.  CMGRP, her former employer, appealed the trial court’s ruling as to the enforceability of the non-recruitment covenant. CMGRP did not appeal the ruling on the enforceability of the customer non-solicitation covenant.

One argument addressed in the appeal was whether Georgia’s old common law requires that a non-recruitment covenant have a geographical limitation.  The Georgia Court of Appeals concluded that it would not address this issue given that the trial court did not rely on the absence of a geographic limitation as a basis for granting the declaratory judgment.  However, the Court of Appeals noted that it had previously upheld employee non-recruitment covenants which do not contain geographic limitations on many other occasions.  Interestingly, several federal courts have reached a different conclusion. See MacGinnitie v. Hobbs Grp., LLC, 420 F.3d 1234, 1242 (11th Cir. 2005) (stating that Georgia courts refuse to enforce employee non-solicitation provisions without territorial limitations); Becham  v. Synthes (U.S.A.), No. 5:11-CV-73 (MTT), 2011 WL 4102816, at *4 (M.D. Ga. Sept. 14, 2011) (“With regard to non-solicitation or non-recruitment of employees, covenants that have no territorial restriction are unenforceable.”).

Another argument addressed in Gallant is whether Georgia’s old common law requires that a non-recruitment covenant be limited to those employees of the company with whom the former employee had material contact or an established relationship. The Court of Appeals noted that it had repeatedly upheld employee non-recruitment provisions that were not limited to employees with whom the former employee had an established relationship. To attempt to sustain the trial court’s ruling invalidating the covenant on this basis, Ms. Gallant pointed to statements by the Court of Appeals in Hulcher Servs., Inc. v. R.J. Corman R.R. Co., LLC, 247 Ga. App. 486, 543 S.E.2d 461 (2000).  In Hulcher, the Court of Appeals stated that “restrictions on solicitation of [the former employer’s] clients or employment of its employees” were unreasonable because the employee “had no contact with customers or employees outside his work area sufficient to establish a relationship with them.”  However, the Court of Appeals in Gallant noted that the only covenant actually at issue in Hulcher was a non-compete.  Therefore, the statements in Hulcher regarding the absence of relationships with employees were mere dicta.  The Gallant court made clear that employee non-recruitment covenants need not be limited to employees with whom the former employee had an established relationship.  Notably, at least one federal court has taken a different tact on this issue.  See Wetherington v. Ameripath, Inc., Nos. 13-11925, 13-13436, 2014 WL 2016582, at *1 (11th Cir. 2014) (invalidating non-recruitment clause which barred former employee from hiring employees of former employer who have no confidential information and who resigned voluntarily as much as a year prior, regardless of whether the employees had any relationship with the plaintiff during his employment).

The rules for drafting non-competes under Georgia’s old common law were fraught with peril and land-mines for drafters. While Gallant illustrates that drafting enforceable non-recruitment covenants under Georgia’s old common law was not without its own difficulty, it was wrought with significantly less challenges than drafting non-competes.