BFV Perspectives, Noncompete & Trade Secrets, | Apr 27, 2023

Restrictive Covenants: Is Your Noncompete Unenforceable? Part II

Last year, we reported on the Georgia Court of Appeals decision in Burbach v. Motorsports of Conyers, LLC, 363 Ga. App. 188 (2022).

In that case, the Court determined that a Florida choice of law provision in the applicable agreement should be disregarded because Georgia public policy requires the court to apply Georgia law to restrictive covenant agreements involving employees in Georgia.  The court then found the noncompete unenforceable under Georgia law for several reasons.

Unhappy with the Court of Appeals decision, the former employer sought review by the Georgia Supreme Court. The Supreme Court granted certiorari. Specifically, the Supreme Court agreed to consider whether the state courts in Georgia can decline to apply another state’s law to restrictive covenants whenever they would be enforceable under that law, but not Georgia law.


Unreasonable Restrictive Covenants

According to Law360, at oral argument in the Supreme Court on April 18, 2023, Justice Andrew Pinson noted:

“under Georgia law, we do have a long history of saying that unreasonable restrictive covenants are not just unenforceable but are against public policy. So, why isn’t it a correct approach to first look at the contract to determine whether it’s against public policy to apply this public policy exception?”

Of course, the former employer argued that the 2011 Restrictive Covenants Act changed public policy in Georgia and that restrictive covenants are no longer to be looked at as contracts in restraint of trade. However, Justice Nels Peterson questioned whether unreasonable restrictive covenants are still against public policy. Justice Peterson questioned if they are contracts in general restraint of trade or whether public policy shifted so Georgia courts are no longer to look at these contracts as a category.


Unenforceable Restrictive Covenants

According to Law360, Justice Pinson further observed that if a restrictive covenant is unenforceable under Georgia law and goes against public policy, the court “couldn’t possibly apply foreign law to enforce it because it would violate Georgia’s public policy to do that.”

It is unclear how the Court will rule on this important issue that impacts enforcement of restrictive covenants that employees in Georgia have signed but call for a different state’s laws to govern.

One key issue that remains unsettled under Georgia law, and is also percolating in this matter, is whether the Georgia statute allows for judicial modification or only for “blue-penciling” over broad covenants.

At this time, it is unclear whether the Supreme Court’s decision will address this key issue under the statute. We will keep an eye out for the Supreme Court’s ruling, which may settle some key issues in restrictive covenant litigation under the Georgia statute.

BFV Perspectives, Noncompete & Trade Secrets, | Apr 27, 2023
Benjamin I. Fink
Benjamin I. Fink

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.