A decade ago, the Georgia legislature enacted a new restrictive covenant statute, O.C.G.A. § 13-8-51 et al. (the “Georgia RCA”). Among other things, the Georgia RCA permitted Georgia courts to blue-pencil or “modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.” O.C.G.A. § 13-8-53(d).
Initially, there was some confusion concerning the scope of the Georgia RCA’s use of the word “modify.” Did “modify” mean that a court could only strike offending language? Or did it mean a court could actually reform or rewrite a contract to make it enforceable? In late 2016, the Northern District of Georgia addressed this issue head on in LifeBrite Labs., LLC v. Cooksey, No. 1:15-CV-4309-TWT, 2016 WL 7840217 (N.D. Ga. Dec. 9, 2016).
In LifeBrite, Ms. Cooksey sought a declaratory judgment that a non-compete provision was unenforceable because it completely lacked a geographic limitation, which was required to be enforceable. In reaching its decision, Northern District of Georgia relied upon and quoted the seminal Georgia Supreme Court decision, Hamrick v. Kelley, 260 Ga. 307, 392 S.E.2d 518 (1990): “[t]he ‘blue pencil’ marks, but it does not write. It may limit an area, thus making it reasonable, but it may not rewrite a contract void for vagueness, making it definite by designating a new, clearly demarcated area.”
Based largely on Hamrick, LifeBrite concluded that “[t]hough courts may strike unreasonable restrictions, and may narrow over-broad territorial designations, courts may not completely reform and rewrite contracts by supplying new and material terms from whole cloth.” (Emphasis added.) As such, the court held that the non-compete clause at issue was “void and unenforceable” because the court could not rewrite the contract to supply the missing geographic area. That would exceed its “blue pencil” powers.
Recently, the Georgia Business Court was faced with a similar question in Cameron Martin v. Hauser, Inc., Case No. 20-GSBC-0008—this time in regards to the enforceability of a customer non-solicit (the “Non-Solicit”). The Non-Solicit states as follows:
Employee hereby agrees that upon termination of Employee’s employment with Company, and for a period of three (3) years thereafter, Employee will not engage in any direct or indirect solicitation, whether such solicitation is initiated by Employee or some other party, of any customers or clients of Company who were customers or clients of Company at the time Employee’s employment with Company terminates or at any time during the 18 months prior to such customer or client of Company [sic] to switch or move its insurance or other business to another company or agency during the aforementioned three (3) year period.
Mr. Martin filed a complaint for declaratory judgment that sought, among other things, a holding that the above-referenced Non-Solicit was unenforceable because: (1) it was longer than two years and; (2) its scope was over broad.
In his March 5, 2021, ruling, Judge Davis concluded that Hauser, Inc. had not presented sufficient evidence to justify a three year restraint, noting that the Georgia RCA provides: “[A] court shall presume to be reasonable in time any restraint two years or less in duration and shall presume to be unreasonable in time any restraint more than two years in duration, measured from the date of the termination of the business relationship.” O.C.G.A. § 13-8-57(b) (Emphasis added.)
The court also held that the scope of the Non-Solicit was overbroad and in violation of O.C.G.A. § 13-8-53(b) because it prevented Mr. Martin from soliciting any company who was a customer of Hauser, Inc. in the 18 months leading up to his departure and not just Hauser, Inc.’s customers at the time of Mr. Martin’s departure.
Notwithstanding these findings, however, Judge Davis refused to strike the entire Non-Solicit, as requested by Mr. Martin’s counsel. Instead, relying heavily on LifeBrite, Judge Davis held that the Georgia RCA permitted him to “blue pencil” the Non-Solicit’s language to make it enforceable.
In order to make it enforceable under Georgia law, Judge Davis did two things. First, he reduced the three year restraint to just one year. Second, he severed the words “or at any time during the 18 months prior” from the Non-Solicit, making it applicable to “any customers or clients of Company who were customers or clients of Company at the time Employee’s employment with Company terminates …”
Judge Davis held that these revisions “honor both the intent of the parties ‘to the extent possible’ by upholding some limited post-employment restriction on Plaintiff’s ability to solicit the Company’s customers or clients, while also granting Defendant only as much relief as—in the Court’s judgement—is reasonably necessary to protect the Company’s interest in such relationships. See O.C.G.A, § 13-8-54(b).”
This holding appears to be the first instance of a Georgia court utilizing the Georgia RCA to modify an overbroad customer non-solicit by reducing its length of time. An argument could be made that by doing so the court “re-wrote” the Non-Solicit by adding the one year term (and not simply striking the overbroad three year term). It seems more accurate, however, to conclude that the decision was consistent with LifeBrite, in that an overbroad term (the duration) was simply narrowed, rather than completely re-written. Just as LifeBrite narrowed an overly broad geographical area, there is now Georgia precedent for narrowing a duration that is overly broad.
Ultimately, the decision in Martin v. Hauser should be good news for Georgia employers seeking to enforce restrictive covenants that are overly broad in duration. Precedent now exists that a court can merely reduce an overbroad duration to a period that it deems to be enforceable and, by doing so, the court does not violate the Georgia RCA’s “blue pencil” rule.