• Georgia Supreme Court Clarifies Standard for Nonsolicitation of Customers Agreements
  • May 31, 2006 | Author: Jeffrey D. Mokotoff
  • Law Firm: Ford & Harrison LLP - Atlanta Office
  • The Georgia Supreme Court has held that a nonsolicitation of customers provision in an employment agreement is not required to be limited to solicitation of customers served within a specific period of time before the employee's termination to be enforceable. See Palmer & Cay of Georgia, Inc. v. Lockton Companies, Inc. The Court's decision in this case represents a departure from a line of recent cases that have refused to enforce nonsolicitation of customers provisions unless they are limited for a period of time before termination of employment (for example prohibit the employee from soliciting customers served during the two years preceding termination).
     
    Here, three employees of Palmer & Cay signed an agreement stating they would not solicit the insurance or employee benefit plan business of any of the customers whom they had served during their employment with Palmer & Cay. After they voluntarily left Palmer & Cay, the employees went to work for a competitor, and then filed a lawsuit asking the court to determine whether the nonsolicitation agreements were enforceable. The trial court held that they were not. The Georgia Court of Appeals upheld this decision, because the agreements did not contain the "back end" temporal limitation.
     
    Reversing the Court of Appeals, the Supreme Court determined the provision was reasonably limited because it prohibited only the solicitation of customers the employees actually served during the terms of their employment. The Court noted that the interest protected by nonsolicitation agreements is the personal relationship established or nurtured by the employee. "This is true because the risk that a former employee may take unfair advantage of personal contacts developed in establishing or nurturing the customer relationship still exists even after such direct and immediate contacts have ended."
     
    The Court of Appeals relied on a prior decision of the Georgia Supreme Court, W.R. Grace & Co. v. Mouyal, in refusing to enforce the nonsolicitation agreements. The appeals court interpreted W.R. Grace to require a "back end" temporal restriction to be enforceable. The Court in Palmer & Cay clarified that its decision in W.R. Grace did not require this temporal limitation, even though the agreement at issue in W.R. Grace happened to contain such a limitation.
     
    The Supreme Court also distinguished another appellate decision upon which the appeals court relied, Gill v. Poe & Brown of Ga. In Gill, the former employee was prohibited from soliciting customers identified on a list that had not been updated and likely included those customers who had severed their relationship with the employer. The Gill Court found this agreement to be unenforceable because the employer had no legitimate business interest in preventing the solicitation of former clients who may have severed their relationship with the employer up to four years before the ex-employee's termination. The Court in Palmer & Cay found Gill inapplicable because there was no such "stagnant" list in that case. The agreement in Palmer & Cay referred to "customers," which the Court held means current, existing clients, not former or future clients. Thus, the Court found the nonsolicitation agreements to be sufficiently limited in this regard.
     
    The Court held that "there is no legal basis for the judiciary to interfere in the affairs of the workplace, and to set aside a restrictive covenant which, for a reasonable two-year period, limits a former employee from engaging in the post-termination solicitation of any of his former employer's customers whom he personally served during his tenure of employment." Accordingly, the Court held that the nonsolicitation agreements were enforceable.
     
    Employers' Bottom Line
    This decision is good news for employers in Georgia seeking to enforce nonsolicitation of customers provisions, not only because it specifically finds no need for a "back end" temporal restriction, but also because it re-emphasizes the employer's business interest in its current customer relationships.