Last month, the Georgia Court of Appeals affirmed the trial court’s refusal to enforce or “blue pencil” a former employee’s non-compete provision. The case—All States AG Parts, LLC v. Herzig—is a cautionary tale for employers relying on restrictive covenants subject to the Georgia Restrictive Covenants Act (“GRCA”), and a good reminder to revisit these provisions to ensure enforceability.
The Case at a Glance
Summit Supply Group, LLC (Summit) and its successor company, All States AG Parts, LLC (ASAP), sought to enforce two identical non-competition and non-solicitation clauses against two former sales employees, Austin Herzig and Jeremy Rose, after they started working for a competitor company.
As to Herzig, the trial court found his first employment agreement with Summit, which contained the restrictive covenants, was superseded by his second agreement with successor company ASAP, which had no restrictive covenants. In affirming, the court of appeals held that because the second agreement contained a merger clause stating that that agreement was the entire agreement between the parties, the second contract superseded the old one, effectively voiding any prior restrictive covenants.
The trial court also found the non-compete clauses of both Rose and Herzig were overly broad and refused to exercise its discretion under the GRCA to modify or “blue pencil” the clauses. The court of appeals affirmed (though considered only Rose’s contract given its holding that Herzig’s contract was superseded). The court of appeals held that Rose’s non-compete provision—which prohibited him from associating with a competitor “in any capacity”—was too broad because it effectively barred him from working in any role, even if it was unrelated to his former job duties. The court of appeals further held that even if the trial court had “eliminated the sweeping ‘associate with in any capacity’ language,” the non-compete provision “still would have forbidden Rose from ‘engaging in a business’ similar to ASAP, without explaining the meaning of that phrase or specifying any particular restricted activities.”
Finally, while Rose did not challenge the enforceability of his non-solicitation clause—which provided that he could not “retain, solicit, or attempt to solicit” any Summit or ASAP employee, supplier, service provider, or customer for a period of one year after the termination of their employment—the court of appeals still considered the issue as weighing against injunctive relief because the companies pointed to no evidence that Rose violated the non-solicitation provision.
Key Takeaways for Employers
- Ensure new agreements do not unintentionally void existing restrictive covenants: Be mindful of the effect of “merger” or “entire agreement” clauses in new contracts, which can supersede prior agreements. If the goal is to have prior agreements remain in effect, be explicit.
- Overbroad non-competes are unenforceable: Georgia law requires non-compete clauses to be reasonable in time, geographic scope, and scope of prohibited activities. These clauses are more likely to be enforced if they limit the restricted activity to specific roles or activities directly related to the employer’s legitimate business interests.
- Do not assume a court will “blue pencil” an overbroad restrictive covenant: Do not assume the court will fix an unenforceable covenant. Draft restrictive covenants carefully to avoid the need for “blue-penciling” in the first instance.
- Non-solicitation agreements require evidence of a violation: Before seeking injunctive relief, consider whether your company can provide evidence of a violation.
Final Thoughts
ASAP v. Herzig underscores the importance of drafting enforceable, narrowly tailored restrictive covenants the first time around. By doing so, employers can protect their business interests while ensuring their agreements stand up in court.
