W.R. Grace & Co., Dearborn Div. v. Mouyal

• Citation: 422 S.E.2d 529,262 Ga. 464
• Decision Date: 21 October 1992
• Docket Number: No. S92Q0994,S92Q0994
• Parties: , 8 IER Cases 84 W.R. GRACE & CO., DEARBORN DIVISION v. MOUYAL, et al.
• Court: Supreme Court of Georgia

Page 529

422 S.E.2d 529

262 Ga. 464, 8 IER Cases 84

W.R. GRACE & CO., DEARBORN DIVISION v. MOUYAL, et al.

No. S92Q0994.

Supreme Court of Georgia.

Oct. 21, 1992.

Margaret H. Campbell, William S. Myers, Ogletree, Deakins, Nash, Smoak & Stewart, Atlanta, for W.R. Grace Co.

Terrence McQuade, Andrew McKay, Glass, McCullough, Sherrill & Harrold, Atlanta, for Mouyal.

Forrest L. Champion, Jr., Champion & Champion, Columbus, Anne S. Rampacek, Sidney O. Smith, Jr., Oscar N. Persons, Alston & Bird, E. Michael Ingram, National Data Corp., Atlanta, amici curiae.

BENHAM, Justice.

This case is before this court as a certified question from the United States Court of Appeals for the Eleventh Circuit, pursuant to OCGA § 15-2-9 and Rule 37 of the Rules of the Supreme Court of Georgia. See W.R. Grace & Co., Dearborn Div.--Conn. v. Mouyal, 959 F.2d 219 (11th Cir.1992). The question centers on the enforceability of a no-solicitation clause contained in an employment agreement between the parties. The clause reads as follows:

Employee agrees that during the period of eighteen months immediately following cessation of Employee's employment with Dearborn, Employee shall not, on Employee's own behalf or on behalf of any person, firm, partnership, association, corporation or business organization, entity or enterprise, solicit, contact, call upon, communicate with or attempt to communicate with any customer or prospect of Dearborn, or any representative of any customer or prospect of Dearborn, with a view to sale or providing of any product, equipment or service competitive or potentially competitive with any product, equipment or service sold or provided or under development by Dearborn during the period of two years immediately preceding cessation of Employee's employment with Dearborn, provided that the restrictions set forth in this section shall apply only to customers or prospects of Dearborn, or representative of customers or prospects of Dearborn, with which Employee had contact during such two-year period.... The actions prohibited by this section shall not be engaged in by Employee directly or indirectly, whether as manager, salesman, agent, sales or service representative, engineer, technician or otherwise.

Upon termination of his employment with Dearborn, appellee became an officer and director of a competitor of Dearborn and, within the 18-month period, allegedly solicited a Dearborn customer with which appellee had visited during the last two years of his tenure with Dearborn. Dearborn filed suit to enforce the restrictive covenant and the district court concluded that the absence of an express territorial limitation in the covenant not to solicit rendered the covenant unenforceable. After Dearborn appealed to the Eleventh Circuit, that court certified the following question to this court:

Whether, as a matter of law, a no-solicitation clause in an employment contract that prohibits the solicitation of the employer's clients that the employee actually contacted while serving the employer, such as the no-solicitation clause involved in this case, is enforceable in Georgia notwithstanding the absence of an explicit geographical limitation. ¹

1. While a contract in general restraint of trade or which tends to lessen competition is against public policy and is void (1983 Ga. Const. Art. Art. III, Sec. VI, Para. V(c); OCGA § 13-8-2), a restrictive covenant contained in an employment contract is considered to be in partial restraint of trade and will be upheld

if the restraint imposed is not unreasonable, is founded on a valuable consideration, and is reasonably necessary to protect the interest of the party in whose favor it is imposed, and does not unduly prejudice the interests of the public.

Rakestraw v. Lanier, 104 Ga. 188, 194, 30 S.E. 735 (1898). Whether the restraint imposed by the employment contract is reasonable is a question of law for determination by the court (Rollins Protective Serv. v. Palermo, 249 Ga. 138, 287 S.E.2d 546 (1982)), which considers "the nature and extent of the trade or business, the situation of the parties, and all the other circumstances. [Cits.]." Orkin Exterminating Co., S. Ga. v. Dewberry, 204 Ga. 794, 803, 51 S.E.2d 669 (1949), overruled on other grounds in Barry v. Stanco Communications Products, 243 Ga. 68(3), 252 S.E.2d 491 (1979). A three-element test of duration, territorial coverage, and scope of activity has evolved as a "helpful tool" in examining the reasonableness of the particular factual setting to which it is applied. Watson v. Waffle House, 253 Ga. 671, 673, 324 S.E.2d 175 (1985). See also National Teen-ager Co. v. Scarborough, 254 Ga. 467, 469, 330 S.E.2d 711 (1985).

2. The focus of this case is the absence of an express geographic description of the territorial restriction contained in the no-solicitation clause of the employment contract. A territorial limitation is necessary to give the employee notice of what constitutes a violation of the restrictive covenant (Fuller v. Kolb, 238 Ga. 602, 604, 234 S.E.2d 517 (1977)), and must specify with particularity the territory in which the employee is restricted. Wiley v. Royal Cup, 258 Ga. 357, 358, 370 S.E.2d 744 (1988). In construing a territorial restriction, we recognize that the reasonableness of the restriction is more dependent upon the facts and circumstances surrounding the case than on the geographic size of the territory. Rollins Protective Services Co. v. Palermo, supra, 249 Ga. at 139, 287 S.E.2d 546. See also Barry v. Stanco Communications Products, supra, 243 Ga. at 70, 252 S.E.2d 491. In determining reasonableness, consideration must be given to the employee's right to earn a living (Orkin Exterminating Co. v. Dewberry, supra), and the employee's ability to determine with certainty the area within which his post-employment actions are restricted. Britt v. Davis, 239 Ga. 747(2), 238 S.E.2d 881 (1977); Fuller v. Kolb, supra; Durham v. Stand-by Labor, 230 Ga. 558(2a), 198 S.E.2d 145 (1973). At the same time, the employer has a protectible interest in the customer relationships its former employee established and/or nurtured while employed by the employer (see Orkin Exterminating Co. v. Walker, 251 Ga. 536(2), 307 S.E.2d 914 (1983)), and is entitled to protect itself from the risk that a former employee might appropriate customers by taking unfair advantage of the contacts developed while working for the employer. Id.; Singer v. Habif, Arogeti & Wynne, 250 Ga. 376, 297 S.E.2d 473 (1982). See also Puritan/Churchill Chem. Co. v. McDaniel, 248 Ga. 850(1), 286 S.E.2d 297 (1982); Uni-Worth Enterprises v. Wilson, 244 Ga. 636(1), 261 S.E.2d 572 (1979).

Various precepts have evolved from the judicial balancing of the interests involved. It is an unreasonable and overbroad protection of the employer's interest to restrict a former employee from post-employment solicitation in a geographic area where the employer had no business interest. Thomas v. Coastal Ind. Services, 214 Ga. 832, 108 S.E.2d 328 (1959); Orkin Exterminating Co. v. Dewberry, supra. While territorial restrictions relating to the geographic area where the employer does business, and restrictions relating to the area where the employee did business are both more narrowly tailored than the overbroad restrictions in Thomas, supra, and Orkin, supra, there is a "vital difference" between such territories. Wiley v. Royal Cup, supra; Guffey v. Shelnut & Assoc., 247 Ga. 667, 670 (n.3), 278 S.E.2d 371 (1981). A restriction relating to the area in which the employer does business is generally unenforceable due to overbreadth, unless the employer can show a legitimate business interest that will be protected by such an expansive geographic description. Howard Shultz and Assoc. v. Broniec, 239 Ga. 181, 183, 236 S.E.2d 265 (1979). See also Rollins Protective Serv. v. Palermo, supra, and Wiley v. Royal Cup, supra. But see NE Ga. Artificial Breeders Assoc. v. Brown, 209 Ga. 547(2), 74 S.E.2d 660 (1953). A restriction relating to the area where the employee did business on behalf of the employer has been enforced as a legitimate protection of the employer's interest (Puritan/Churchill Chem. Co. v. McDaniel, supra; Howard Shultz and Assoc. v. Broniec, supra), but the prohibition against post-employment solicitation of any customer of the employer located in a...