The Georgia Court of Appeals issued two decisions in July addressing restrictive covenants in Georgia. In both instances, the Court of Appeals upheld trial court findings that the covenants were unenforceable under existing Georgia law.
In Peachtree Fayette Women’s Specialists, LLC, v. Turner, the Court of Appeals agreed with Superior Court Judge Tommy Hankinson of the Griffin Judicial Circuit that a non-compete provision is unenforceable if it covers any territory in which the employee did not work. The non-compete provision in question restricted Dr. Heather Turner from practicing at a number of hospitals, including Piedmont Hospital in Atlanta. The record reflected that Dr. Turner never worked at Piedmont Hospital and that the physicians at Peachtree Fayette Women’s Specialists had resigned their staff privileges there. PFWS argued that because its principal, Dr. William Cook, had worked previously at Piedmont and established it as a referral source, it had a legitimate interest in preventing competition there. The Court of Appeals rejected this argument, noting that Dr. Turner did not work at Piedmont and therefore that PFWS did not have an interest in preventing her from working there. Because current Georgia law does not permit modification of restrictive covenants in employment agreements, the entire non-compete was invalidated, including the provisions that did protect PFWS’s legitimate interests.
In Fine v. Communication Trends Inc., the Court of Appeals agreed with Fulton County Superior Court Judge Melvin Westmoreland that a customer non-solicitation provision was unenforceable because it prevented contact with customers with an eye to providing competitive services. The case was contested between Communications Trends, a business engaged in media planning, purchasing, and cable network programming, on the one hand and its former employee Lynette Fine, on the other. Fine’s new employer, Allscope Media, was also a party. The non-solicitation covenant at issue stated as follows:
4. Nonsolicitation of Clients. The Employee hereby also agrees and covenants with [CTI] that throughout the period of his employment and for a period of two (2) years immediately following cessation of Employee’s employment with [CTI], the Employee shall not solicit advertising media placement business similar to [CTI] on behalf of any persons or entity other than [CTI], either directly or indirectly, whether as a shareholder, partner, joint venturer, consultant, employee, officer, agent or otherwise, from any person or entity (or otherwise contact, call upon, communicate with or attempt to communicate with any such person or entity with a view to providing advertising media placement services competitive or potentially competitive with [CTI][.] )
(Emphasis added.) The trial court found and the Court of Appeals agreed that the highlighted portion rendered the entire provision unenforceable because it would prevent Fine from communicating with customers that seek her out. Georgia law permits employers from preventing competitive solicitation by former employees, but it forbids covenants that purport to prohibit acceptance of business. The Court of Appeals found that CTI’s covenant ran afoul of this rule.
(As an aside, the trial court’s finding that the covenant was unenforceable prevented the resolution of a very interesting factual question. The record reflected that Fine attended a large cable industry dinner after joining Allscope and provided her new Allscope business cards to executives affiliated with CTI’s clients. Fine testified that she informed CTI’s clients that she was not allowed to solicit them and that they would have to provide a statement in writing that she had not done so in order to continue doing business with her at Allscope. Fine further testified that if CTI’s clients contacted her and sent emails stating that they had not been solicited, she accepted their business. Fine’s activity falls in the gray area of solicitation and would have presented a difficult question for a fact-finder.)
The Court of Appeals also found that Fine did not violate the non-disclosure of confidential information provision of her agreement with CTI when she provided revenue projections to Allscope. The fact that the revenue information was not client-specific proved to be decisive.
The Court of Appeals did, however, reverse the trial court’s decision to grant Fine’s motion for summary judgment on a duty of loyalty claim brought by CTI. CTI alleged that Fine breached her duty of loyalty by: (1) making detailed disclosures to Allscope regarding the revenues generated by various CTI clients; (2) failing to provide adequate notice prior to her resignation; and (3) deleting client contact information and destroying CTI’s files that had been in her possession. The Court of Appeals found that the former two allegations were insufficient to state a claim for breach of the duty of loyalty, but the final allegation was sufficient.