Wiley v. Royal Cup, Inc.

• Decision Date: 30 June 1988
• Docket Number: No. 45610,45610
• Citation: 370 S.E.2d 744,258 Ga. 357
• Parties: WILEY v. ROYAL CUP, INC.
• Court: Georgia Supreme Court

Page 744

370 S.E.2d 744

258 Ga. 357

WILEY v. ROYAL CUP, INC.

No. 45610.

Supreme Court of Georgia.

June 30, 1988.

Kessler & Sparks, Steward A. Sparks III, Atlanta, for appellant.

Wildman, Harrold, Allen, Dixon & Branch, Thomas B. Branch III, Atlanta, for appellee.

GREGORY, Justice.

On September 23, 1983, Wiley entered into an employment contract with Royal Cup, Inc., to serve as a district sales manager for its office coffee supply business. Wiley tendered his written resignation from employment on September 29, 1987. Royal Cup then filed an application for interlocutory injunction, seeking to enforce restrictive covenants contained in the employment contract. The trial court determined the covenants are valid and that Wiley had breached their provisions. The court granted an interlocutory injunction in favor of Royal Cup and Wiley appeals.

Paragraph eleven of the employment agreement provides:

(a) The District Sales Manager, during his employment by the Company and within a period of one (1) year after the termination of his employment, with or without cause, will not divulge to any person, partnership, firm, or corporation not employed by or affiliated with the Company, any of its business methods, sales, service, or distribution techniques, selling prices, or the names or addresses of its present or prospective customers.

(b) The District Sales Manager further covenants that within the Territory, he will not at any time within a period of two (2) years next following the termination of his employment with the Company, with or without cause:

(1) For himself or any other person, partnership, firm, or corporation, solicit or accept orders for items of a nature similar to or competitive with those described in Exhibit "A" attached hereto from any person, partnership, firm, or corporation who or which shall have been a customer of the Company during any part of the two (2) year period immediately preceding the termination of his employment or who or which was solicited or contacted by the Salesman during the term of his employment by the Company; or

(2) In any way solicit, divert, take away, or interfere with, or attempt to solicit, divert, take away, or interfere with any of the custom, trade, business, or patronage of the Company, or in any way harass, threaten, or intimidate any person who shall be employed by the Company.

1. Wiley argues the covenant not to solicit, 11(b), is invalid because the territorial restriction is unreasonable. Exhibit B to the employment contract specifies that the territory to which the covenant not to solicit applies covers 18 named counties in the State of Georgia. ¹ The undisputed evidence in the record shows that Wiley never worked in eight of the restricted counties, and the parties have stipulated that Royal Cup does not do business in six of these counties.

At issue in Guffey v. Shelnut & Associates, 247 Ga. 667, 278 S.E.2d 371, (1981), was the validity of a covenant not to solicit which contained no description of the territory in which the employee was prohibited from soliciting his former employer's customers. The employer argued that the traditional rules regarding territorial restrictions should not apply to a covenant not to solicit because in such a case the territory is necessarily circumscribed by the geographic location of the employer's customers. We rejected this argument holding that a covenant not to solicit must specify with particularity the territory in which the employee is restricted from soliciting. We also noted that with regard to the rules of territorial restrictions, "[t]here is a vital difference between the territory in which the employer does business and the territory in which the employee [does] business," citing Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 236 S.E.2d 265 (1977). 247 Ga. at 670, n. 3, 278 S.E.2d 371.

In Howard Schultz, a case involving a covenant not to compete, we held that territorial restrictions which relate to the territory in which the employee worked are generally enforceable. Those restrictions which relate to the territory in which the employer does business but the employee did not work will not be enforced absent a showing by the employer of the legitimate business interest sought to be protected.

"It appears that the justification for this difference in treatment is that a court will accept as prima facie valid a covenant related to the territory where the employee was employed as a legitimate protection of the employer's investment in customer relations and good will. Thus a court will enforce an agreement prohibiting an employee from pirating his former employer's customers served by the employee during the employment, at the employer's direct or indirect expense. Conversely, a court will not accept as prima facie valid a covenant related to the territory where the employer does business where the only justification is that the employer wants to avoid competition by the employee in that area." Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 183-4 (236 SE2d 265) (1977).

We apply this same requirement to a territorial restriction in a covenant not to solicit. See, Whaley v. Alco Standard Corp., 253 Ga. 5, 315 S.E.2d 654 (1984). In the case before us, the territorial restriction goes beyond the area in which Wiley served the customers of Royal Cup: Wiley is prohibited from soliciting customers in Bartow and Hall...