Guffey v. Shelnut & Associates, Inc.

• Decision Date: 26 May 1981
• Docket Number: No. 37179,37179
• Citation: Guffey v. Shelnut & Associates, Inc., 278 S.E.2d 371, 247 Ga. 667 (Ga. 1981)
• Parties: , 1981-1 Trade Cases P 64,044 GUFFEY et al. v. SHELNUT & ASSOCIATES, INC.
• Court: Georgia Supreme Court

Page 371

278 S.E.2d 371

247 Ga. 667, 1981-1 Trade Cases P 64,044

GUFFEY et al. v. SHELNUT & ASSOCIATES, INC.

No. 37179.

Supreme Court of Georgia.

May 26, 1981.

Rehearing Denied June 16, 1981.

W. M. Fulcher, Fulcher, Hagler, Reed, Obenshain, Hanks & Harper, Augusta, for Glenn H. Guffey et al.

Stephen E. Curry, Augusta, for Shelnut & Associates, Inc.

HILL, Presiding Justice.

This case involves a restrictive covenant in an employment contract. The former employees urge that such covenants must be limited as to territory. The employer urges that this is not a covenant against competition but is a covenant against customer solicitation (customer diversion), that such a covenant by its nature is limited as to territory by the location of those customers, and that the employment contract therefore need not specify the restricted territory by designated states or political boundaries.

Shelnut & Associates, Inc., a Richmond County corporation in the business of selling tax-sheltered annuity plans and other related insurance services to teachers through school systems throughout the southeast and other states, sued Guffey, a former manager, and Edge, a former sales agent.

The complaint alleged that Guffey had signed an employment contract with the plaintiff under which he was given responsibility for recruiting and training sales agents and developing business in North Carolina and other territory to be approved by the corporation. This agreement contained a restrictive covenant which provided in pertinent part as follows: "For a period of three (3) years after the termination of this Agreement, the manager will not, directly or indirectly, solicit variable annuity, disability, tax-sheltered annuity, or life insurance sales from those policyholders and school systems that are doing business with the Company at the date of Manager's termination.... Within ninety (90) days following the termination of employment, company will furnish manager with a list of all policyholders, and school systems referred to above." ¹

The complaint was amended to allege that while employed by plaintiff, Guffey had sold to 23 school systems in South Carolina, 14 in Tennessee, 4 in Louisiana, 3 in Georgia, 2 in Florida, 1 in Alabama, 1 in Virginia, 1 in West Virginia and 1 in Ohio.

At a hearing on the plaintiff's prayer for temporary injunction and the defendants' motions to dismiss, the trial court overruled the motions to dismiss and granted the plaintiff a temporary injunction. The trial court temporarily enjoined defendant Guffey from directly or indirectly soliciting sales from those policyholders and school systems doing business with plaintiff as of the date of termination of employment that he had dealt with while working for plaintiff (specified above), and provided that the injunction would be expanded when plaintiff filed a verified list of the school systems doing business with plaintiff on the date of termination of Guffey's employment. Defendant Edge was enjoined from aiding or assisting defendant Guffey in the solicitation of plaintiff's policyholders.

The plaintiff supplied the verified list of school systems doing business with plaintiff on the date of termination. It included almost 300 school systems in 16 states (Alabama (17), Florida (18), Georgia (16), Kansas (2), Kentucky (20), Louisiana (33), Mississippi (8), Missouri (1), North Carolina (46), Ohio (22), Oklahoma (2), South Carolina (49), Tennessee (24), Texas (4), Virginia (11), and West Virginia (18)).

On appeal, the defendants contend that the trial court erred in refusing to grant their motions to dismiss and in granting the plaintiff an interlocutory injunction. Decision of this case therefore requires determination of the validity of the restrictive covenant in the employment contract.

The employee was prohibited from soliciting sales from those policyholders and school systems doing business with the employer at the date of his termination, but the covenant contained no territorial description. The employee contends that a territorial description is a prerequisite to the validity of the covenant. The employer contends that the present case is a "customer solicitation" (customer diversion) case to which the traditional territorial rule should not apply and urges this court to adopt a less restrictive rule in dealing with such covenants. In support of its position, the employer contends that a covenant prohibiting customer solicitation is reasonable for several reasons: the covenant allows former employees to compete in the same territory with the former employer provided the employee does not solicit clients or customers of the former employer; it provides notice to the employee of the persons with whom he cannot do business; it is necessary to preserve the employer's regular clients and customers; and it is the only type of covenant which can be both valid and adequate to deal with a business involving a geographically diverse area of operation.

The employer urges that this is a question of first impression in this state. Although we may not have heretofore expressly distinguished between covenants prohibiting competition as opposed to covenants prohibiting customer solicitation, we have heretofore considered such covenants. ²

In Edwin K. Williams & Co. v....