Non-Compete Agreements: Covenant without a Geographic Limitation

Is a non-compete covenant without any reference to a geographic limitation enforceable under Georgia law? Probably not.

To understand why, we must first turn to Georgia statutory law. O.C.G.A. § 13-8-53(a) only enforces non-compete covenants that are “reasonable in time, geographic area, and scope of prohibited activities.”

O.C.G.A. § 13-8-53(c)(2) states that a geographic area can be defined somewhat loosely:

“The phrase ‘the territory where the employee is working at the time of termination’ or similar language shall be considered sufficient as a description of geographic areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination.”

However, Georgia courts have held that the absence of any limitation on geographic area – in effect, an unlimited geographic area spanning the entire universe – is unreasonable and thus unenforceable.

In Carpetcare Multiservices, LLC v. Carle, 819 SE 2d 894 – Ga: Court of Appeals 2018, the court held:

“[b]ecause the non-compete covenant did not contain any reference to a geographic area limitation, it failed to comply with OCGA § 13-8-53(a), and, thus, the trial court correctly determined that it was void and unenforceable.”

Can a Georgia court modify a restrictive covenant to make it enforceable? Probably not. First, let’s examine O.C.G.A. § 13-8-53(d), which states:

“Any restrictive covenant not in compliance with the provisions of this article is unlawful and is void and unenforceable; provided, however, that a court may 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.”

Georgia appellate opinions applying the modification statute are sparse because the statute went into effect relatively recently (in 2011). However, the Federal District Court for the Northern District of Georgia applied Georgia law in LifeBrite Labs., LLC v. Cooksey (N.D. Ga. Dec. 9, 2016). In that case, the non-compete covenant did not contain a geographic limitation. A key question was whether the District Court could use OCGA § 13-8-53(d) to add a geographic limitation to render the non-compete covenant enforceable. In reaching its decision, the District Court cited the Georgia Supreme Court decision in Hamrick v. Kelley (courts may strike out unenforceable terms but may not write new terms) and held:

“Though 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 whole cloth.”

In other words, the District Court decided that O.C.G.A. § 13-8-53(d) did not allow it to add a geographic limitation to the non-compete covenant. As a result, the District Court held the non-compete covenant was unenforceable:

“The non-competition clause… does not contain a geographic limitation. Under its terms, [defendant] would be prohibited from working for any potentially competitive company anywhere in the world. Such a result is clearly unreasonable under the [Georgia] statute, rendering the non-competition clause void and unenforceable.”