Introduction
A late 2023 district court decision granting a preliminary injunction in favor of an enforcer of a restrictive covenant under the Georgia Restrictive Covenants Act (GRCA) confirms that the prospect of successful covenant enforcement in Georgia is very much alive and well1. There, the parties’ franchise agreements expressly stated that Georgia law governed them, thus invoking the GRCA with respect to analysis of the validity of a covenant not to compete in those agreements.
But what about agreements containing a choice-of-law provision specifying a non-Georgia jurisdiction? Would that mean that the non-Georgia law controls when determining the enforceability of a restrictive covenant, even when the covenant is litigated in a Georgia court? On September 6, 2023, the Supreme Court of Georgia answered “no” to the latter question in Motorsports of Conyers, LLC v. Burbach2, holding that enforceability of a restrictive covenant litigated in a Georgia court implicates Georgia law, irrespective of whether a choice-of-law provision specified non-Georgia law.
Background Facts
Edmund Burbach worked for six Harley-Davidson dealerships (“the dealerships”) and was promoted to Chief Operating Officer. At that time, he executed employment agreements with two of those dealerships, namely, Motorsports of Conyers, LLC d/b/a Falcons Fury Harley-Davidson and Motorsports of Durham, LLC d/b/a Raging Bull Harley-Davidson (collectively, “Motorsports”), Each employment agreement contained identical restrictive covenants. Among other things, the covenants prohibited Burbach, for three years following any termination of his employment, from working for any competitor within a 120-mile radius of any of the dealerships, The agreements also specified that they were governed by Florida law.
Burbach’s employment with Harley-Davidson ended three years later, at which time he began working for a different Harley-Davidson dealership that competed with the dealerships and that was located less than 20 miles from Falcons Fury. Citing the covenants, Motorsports asked Burbach to end that job, but Burbach persisted.
Procedural History of Burbach
Motorsports sued Burbach for breach of the covenants in the Superior Court of Henry County, then moved for a preliminary injunction. The Superior Court granted the injunction, applying Florida law and enforcing the covenants. In so doing, the court rejected Burbach’s argument that Georgia law ought to apply because Florida’s restrictive covenant law violated Georgia public policy.
The Georgia Court of Appeals reversed the Superior Court. Comparing the GRCA to Florida law, the Court of Appeals held that Florida law would violate Georgia public policy because the Florida law would likely uphold the enforceability of the covenant, whereas the GRCA would invalidate it for overbreadth as to duration, scope of activity, and geographic reach.
The Supreme Court of Georgia granted review of the Court of Appeals’ decision “to clarify the framework for deciding whether to apply contracting parties’ choice of foreign law to govern the enforceability of a restrictive covenant in an employment contract.” The Supreme Court agreed that Georgia law governed, but announced different reasons to support that conclusion.
The Supreme Court of Georgia’s Burbach Opinion
The Court began its discussion by observing that Georgia law honors a contractual choice of foreign (non-Georgia) law unless doing so would contravene Georgia public policy. Traditionally, one may demonstrate such contravention by showing that “the foreign law governing the issue is significantly different from any corresponding Georgia law.” “Significantly different” means “that the foreign law is so radically dissimilar to anything existing in [Georgia’s] own system of jurisprudence’ that it would ‘seriously contravene’ the policy embodied in Georgia law.”
However, held the Court, the context of a restrictive covenant analysis does not require the traditional comparative undertaking. This conclusion resulted from the Court’s observation that a restrictive covenant deemed unreasonable under the GRCA is a contract “in general restraint of trade,” which a Georgia statute expressly lists as a violation of Georgia public policy.
Thus, for any restrictive covenant case litigated in Georgia involving a contractual choice of foreign law, the enforceability analysis must start by applying the GRCA.
- If the court concludes that the restrictive covenant is reasonable under the GRCA, it “can honor the choice-of-law provision and apply the foreign law to determine the enforceability of the restrictive covenant.”
- If, on the other hand, the court concludes that the restrictive covenant is unreasonable under the GRCA, it must refuse to enforce the covenant as written, although it may engage in “blue-penciling” under the GRCA to modify the aspects of the covenant found unreasonable.
Conclusion
If parties to a restrictive covenant agree to a choice of non-Georgia law in an employment or other agreement containing the covenant, they should be aware that if litigation over the covenant ensues in a Georgia court and the court can exercise personal jurisdiction over one of the parties as a party defendant, the court will apply Georgia law (namely, the GRCA) to assess enforceability of the restrictive covenant, irrespective of the choice-of-law provision. Therefore, a party seeking to avoid application of the GRCA to the case ought to include a choice-of-forum provision in the agreement to select a forum other than Georgia to a adjudicate any disputes related to the agreement3. The ability to select the forum places a premium on understanding how the restrictive covenant law of the potentially chosen forum compares to those of other forums. Experienced counsel can place a business in the best position to make that determination before execution of an agreement.
1 See OnAxis Franchising Grp LLC v. Harod, No. 1:23-CV-4835 (N.D. Ga. Dec. 28, 2023) (issuing preliminary injunction on ground of breach of contract and upholding enforceability of restrictive covenant under the GRCA).
2 317 Ga. 206, 892 S.E.2d 719 (2023).
3 Under both federal and Georgia law, “‘a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.’” OnAxis, supra, slip op. at 19-20 (citations omitted).
About the Author:
Michael Cicero is a Partner with Taylor English Duma, LLP, located in Atlanta, Georgia. His career in the private practice of intellectual property law includes litigation and spans over 30 years. Michael currently represents clients in patent prosecution and opinions, trademark prosecution, and copyright matters. Since 2015, Michael has co-authored the trademark infringement and copyright infringement portions of the IP Litigation chapter appearing in Georgia Business Litigation, a book available through ALM Publications.
