Georgia Court Provides Guidance on Reasonableness of Restrictive Covenants

Restrictive covenants are an attractive and useful tool that allow people to protect their business interests. But prior to 2011, Georgia restrictive covenant law was vague and unclear. Georgia citizens were left unsure whether a court would enforce their restrictive covenant clauses. In 2011, Georgia passed the Restrictive Covenants Act which provided much-needed clarity.

The new Georgia law emphasizes the importance of “reasonableness” when determining if a restrictive covenant is enforceable. The three terms that must be “reasonable” are: 1) the geographic area; 2) the time period of the restriction; and 3) the scope of activities, products and services restricted.

While toeing the line between a reasonable and unreasonable restrictive covenant may seem tough, the 2011 Georgia Restrictive Covenants Act does a good job of simplifying the process by providing standard language anyone can follow.

For example, O.C.G.A. § 13-8-53(c)(1) discusses both the activities and time requirements and provides a formula to create a presumptively reasonable, enforceable clause. To be presumptively reasonable, the clause should reference the activities, products, or services followed by the phrase “of the type conducted, authorized, offered, or provided within two years prior to termination.”

O.C.G.A. § 13-8-53(c)(2) also discusses presumptively reasonable and thus enforceable language regarding geographic scope. The statute states that “the territory where the employee is working at the time of termination” or similar language is presumptively enforceable. With such explicit guidelines provided, there is no need to experiment with the wording.

It may be tempting for an employer to push the limits of what is reasonable and experiment with the language of the clause. However, introducing a lack of clarity could hurt their ability to protect customer, employee and vendor relationships.

A 2020 Georgia case exemplifies the harm of a lack of clarity. In Chef Merito, Inc. v. Gonzalez, the Northern District of Georgia Court ruled that a non-compete restrictive covenant clause was unenforceable. The clause did not limit the geographic area as outlined by O.C.G.A. § 13-8-53(c)(2) and the court found that it was overly broad. Therefore, the employer could not prevent a former employee from competing for a completely avoidable reason.

An experienced attorney can help ensure that your restrictive covenant is clear and enforceable. Likewise, employees who believe they may be subject to an overly broad restrictive covenant should explore their options because the lack of clarity may render the contract unenforceable.

If you have questions or need advice about an existing or needed restrictive covenant, contact the experienced transportation and logistics attorneys at Mitchell-Handschuh, who are always ready to provide assistance.