- Restrictive Covenants -- Non-Solicitation of Customer Clauses -- Enforceability
- May 15, 2008 | Authors: James F. Bogan; Susan W. Pangborn; Thomas H. Christopher
- Law Firm: Kilpatrick Stockton LLP - Atlanta Office
A non-solicitation of customer clause is a common form of restrictive covenant used in employment, distributorship, franchise, and other types of commercial contracts. One of the benefits of this type of clause is that, if drafted properly, it need not contain a territorial restriction.
In W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 422 S.E.2d 529 (1992), the Georgia Supreme Court explained that “a restrictive covenant prohibiting a former employee from rendering services to any client of the employer must contain a territorial restriction expressed in geographic terms.” Id. at 467, 422 S.E.2d at 533. The Georgia Supreme Court recognized, however, that a geographic restriction is not needed where an employee is merely restricted from soliciting customers with whom the employee had contact during his tenure with the employer. Id.
In light of Mouyal and similar case authorities, non-solicitation of customer clauses containing no territorial limitation are now common. Most clauses, consistent with the Georgia Supreme Court’s decision in Mouyal, restrict the employee from post-employment competition by contacting customers with whom the employee had contact during his or her employment. Drafters of such restrictive covenants, however, now commonly expand this type of restriction (again, with no territorial limitation) to prohibit post-employment contact with respect to customers about whom the employee was provided with confidential or proprietary information during employment. Such a clause, however, is now subject to a direct attack, according to a recent decision by the Georgia Court of Appeals.
On February 1, 2008, the Georgia Court of Appeals decided Trujillo v. Great S. Equip. Sales, 289 Ga. App. 474, 657 S.E.2d 581 (2008). In so doing, the Court of Appeals determined that the parties’ “Confidentiality and Restrictive Covenant Agreement” was unenforceable as a matter of law due to its failure to include a geographic restriction within its non-solicitation clause. Id. at 478, 657 S.E.2d at 584. The non-solicitation clause in Trujillo restricted a former employee from soliciting customers with whom the employee had contact or about whom the employee had confidential or proprietary information. Id. at 477, 657 S.E.2d at 584. The non-solicitation clause did not contain any geographic restriction. Id.
The Trujillo court struck down the non-solicitation clause because it lacked a reasonable geographic restriction. Id. The appellate court reasoned that under Mouyal the only instance where a non-solicitation clause does not require a geographic restriction is where the agreement restricts contact with customers with whom the employee had a business relationship during employment. Id. at 478, 657 S.E.2d at 584. Accordingly, the appellate court reversed the trial court’s ruling that the non-solicitation clause was enforceable. Id. at 478–479, 657 S.E.2d at 585.
In Georgia, at least, a non-solicitation of customers clause must be properly limited to customers with whom the employee had actual contact. Otherwise, the clause must have an appropriate geographic restriction, which all but eliminates the benefit of a non-solicitation clause over a more general covenant against competition.