Non-Compete News – Georgia Court Interprets Georgia's Blue Penciling Statute

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FordHarrison

It’s time to bring back FordHarrison’s Non-Compete News!  And what better way to kick off 2017 than with Lifebrite Labs, LLC v. Cooksey (N.D. Ga. December 2016), Georgia’s first-ever published decision interpreting how a Georgia court may modify a non-compete provision that is overbroad under Georgia’s Non-Compete Statute, O.C.G.A. 13-8-51 et al. a/k/a the “blue penciling” statute.

As a reminder, in the Spring of 2011, the Georgia legislature passed the Non-Compete Statute, which, for the first time, gave courts – in the context of an employer-employee agreement – the discretion to “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).  Prior to 2011, Georgia courts refused to modify overbroad restrictive covenants; if one part of a non-compete was unenforceable, then that non-compete and any non-solicitation of customers provision in the same agreement would be struck down in their entirety. 

In Lifebrite, Ms. Cooksey was a sales representative hired by the Company to sell toxicology tests to medical practices.  Shortly after Ms. Cooksey began her employment, the parties executed an employment agreement (“Agreement”) that contained, among other things, the following restrictive covenant provisions:

7.1.1. Clients.  For as long as she is employed and for a period of one (1) year thereafter, employee shall not initiate contact, directly or indirectly, with any person who is currently or has been a client of company in an attempt to induce or motivate them either to become a client of a competitive laboratory company.

7.2   Non-Competition.  For as long as she is employed and for a period of one (1) year thereafter, employee shall not participate, directly or indirectly, as an owner, employee, consultant, office management position, in any . . . entity, engaged in any laboratory testing that is being sold by employee on behalf of company. 

Ms. Cooksey worked for Lifebrite for just a few months.  Then, she accepted an offer from a competing lab testing facility.  The present lawsuit was filed a short time later.

Ms. Cooksey sought a declaratory judgment stating that the restrictive covenants contained in her contract were unenforceable because they lacked geographic limitation.  As an initial matter, the court addressed the non-solicitation of customers provision and recognized that non-competition clauses and non-solicitation clauses are treated differently under Georgia law.  Whereas non-competition clauses are generally enforceable as long as they are “reasonable in time, geographic area, and scope of prohibited activities,” non-solicitation agreements are not required to expressly provide a geographic term to be enforceable.   

The Georgia statute specifically states that “[a]ny reference to a prohibition against ‘soliciting or attempting to solicit business from customers’ or similar language shall be adequate for such purpose.” OCGA 13-8-53(a).  While the court acknowledged that the non-solicitation clause in the agreement was overbroad, the court recognized its discretion to “modify” the covenant, as defined in the statute.  It did so and held the non-solicitation clause to be enforceable.

The court focused next on the non-competition clause, which contained no geographic limitation.  Under its terms, “Cooksey would be prohibited from working for any potentially competitive company anywhere in the world.”   Here, the court analyzed the term “modify” as defined in the statute.  The court framed the question as whether “modify” means the court “may only excise offending language, or whether courts are empowered to actually reform and rewrite a contract.”  The court found the statute’s definition of “modification” of little help: “(A) Severing or removing the part of a restrictive covenant that would otherwise make the entire restrictive covenant unenforceable; and (B) Enforcing the provisions of a restrictive covenant to the extent that the provisions are reasonable.”  O.C.G.A. 13-8-51(11).

In making its determination, the court analyzed Georgia’s pre-statute law in the sale-of-business context.  In those contracts, Georgia courts were allowed to “blue-pencil” (a/k/a modify) unreasonable restrictive covenants, but that meant only removal of the offending language.  The court then quoted the seminal Georgia Supreme Court decision Hamrick v. Kelley, where the Court held that “[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.”  Finally, the court reasoned that nothing in the statute makes clear that the legislature intended to change Georgia’s common law approach to blue-penciling “other than to allow it in more circumstances [e.g., in the employer-employee context].” 

Accordingly, the Court held that the term “modify” means the Hamrick approach: “[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.”  As a result, it found the non-competition provision “void and unenforceable” because it would not rewrite the contract to supply a missing geographical term.

Bottom Line

While it has taken nearly six years to have a court publish a decision interpreting the statute in the context of a non-competition provision, Lifebrite makes clear that Georgia practitioners still must carefully and narrowly draft restrictive covenants.  While the “live or die on its face” rules of drafting Georgia restrictive covenants no longer exist, this Georgia court was unwilling to remake the company’s contract in order to correct its mistake.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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