Georgia’s New Business Court Strikes Down Physician Non-Compete Provision That Lacked Geographic Restrictions.

Georgia’s New Business Court Holds Physician Non-Compete and Non-Solicit Provisions that Did Not Contain Geographic Limitations were Unenforceable

In early 2022, in a lawsuit called Steuer v. Tomaras, et al., Georgia’s relatively new Statewide Business Court held that a non-compete and non-solicit provision in a physician’s employment agreement were unenforceable because the provisions failed to include any geographic limitations.

Case Background

As background, Dr. Steuer, a former partner of the defendant doctors, sought to enforce certain restrictive covenants, including a non-compete provision and employee non-solicit provision. The defendants, who were all physicians, asked the Court to declare the provisions unenforceable under Georgia law.

Specifically, the non-competition provision prohibited the physicians for a period of time from competing against Dr. Steuer within a defined Territory. The term “Territory” was defined by the agreement as “a two (2) air mile radius around the Practice Location(s) as provided in Exhibit ‘C’.”  Exhibit “C,” however, was left blank.  Presumably, the company overlooked listing the Practice Locations to the Exhibit at the time the physicians joined.

Relevant Law

Unlike many states, in Georgia, non-compete agreements are explicitly limited to certain types of workers. Specifically, under Georgia’s Restrictive Covenants Act (RCA), located at O.C.A.A. § 13-8-53, non-compete agreements – as opposed to non-solicit and non-disclosure agreements – are limited to those employees who during their employment:

1. 1. Customarily and regularly solicit for the employer customers or prospective customers;
   2. Customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others;
   3. Perform the following duties:
      • Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
      • Customarily and regularly direct the work of two or more other employees; and
      • Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or
   4. Perform the duties of a key employee or of a professional.

Here, the physicians would presumably satisfy the above requirement as a “professional.” The RCA also requires, however, that a non-compete provisions must be: (i) reasonable in geographic scope; (ii) reasonable in temporal scope; and (iii) necessary to protect one or more legitimate business interests.

The Court’s Analysis

The Court noted that if a non-compete is overbroad, the RCA allows a judge to modify the non-compete to make it reasonable. The RCA defines “modification” to include:

(A) Severing or removing that 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

The Court found that where, as in this case, a non-compete is completely missing a geographic restriction, it cannot be saved by a modification. The definition of a “modification”, by its own terms, cannot include adding a geographic territory. For that reason, the Court determined that the non-competition restriction signed by the physicians was fatally flawed. The Court held the employee non-solicit provision was enforceable for the same reason, i.e., it was not limited by any geographic territory. As a result, the Court granted the defendant physicians’ declaratory relief to hold the non-compete and employee non-solicit provision unenforceable.

Takeaways

This case is a reminder of the importance of companies having clear on-boarding procedures, which should include a policy of ensuring all employment related agreements are distributed, signed – and properly completed. A company’s attorney, no matter how good or experienced, cannot be expected to persuade a court to overlook clear contractual mistakes, especially in non-compete litigation. If your company doesn’t already have a detailed on-boarding and off-boarding checklist, those should be created and discussed with an employment attorney.

This case is also a reminder that, even in so-called conservative jurisdictions, such as Georgia, non-competition and non-solicitation agreements are not always enforceable. The Court in this case properly applied the RCA as written to determine that a “modification” cannot add terms, including geographic limits, that did not exist in a restrictive covenant.

If you need to speak with a Georgia non-compete or non-solicit attorney, please contact us at 1-877-858-6868 or coordinator@caklegal.com.