Since the Georgia Supreme Court’s 1992 decision in W.R. Grace v. Mouyal, it has been well established in Georgia that customer non-solicitation covenants do not need to be limited to any particular geographic territory, provided that the covenant only prohibits solicitation of customers with whom the former employee had contact. However, the W.R. Grace decision did not expressly define what constitutes customer “contact” and, for the past fifteen-plus years, employers drafted non-solicitation covenants without any guidance on this essential term.
In the absence of judicial guidance, some employers chose not to define the term “contact” at all and simply prohibited employees from soliciting customers with whom they had “contact.” Given the hostility of Georgia courts to vague restrictive covenant language and their insistence on making sure employees know exactly what is prohibited, that approach appeared to involve some element of risk. Other employers included explicit definitions of “material contact” that included not only actual contact with clients (e.g., phone calls and sales visits), but other forms of “material contact” such as gaining access to confidential information about customers (e.g., sales and pricing data) or coordinating the sales activities of other sales personnel who actually make the customer calls. Because Georgia courts have recognized repeatedly that an employer’s legitimate business interests extend to protection of confidential customer information, defining material contact to include obtaining access to a customer’s confidential information seemed to be a reasonable approach.
Unfortunately, a recent panel decision from the Georgia Court of Appeals – Trujillo v. Great Southern Equipment Sales, LLC, 657 S.E.2d 581 (Ga. Ct. App. 2008) – has adopted a very narrow definition of customer contact, which limits an employer’s ability to draft comprehensive non-solicitation covenants. In Trujillo, the employer sought to enforce a customer non-solicitation covenant that did not provide any territorial restriction, but did contain the following customerbased limitation:
The non-solicitation restriction set forth in this [section] is specifically limited to Customers of Employer with whom Employee had contact (whether personally, telephonically, or through written or electronic correspondence) during the three (3) year period immediately preceding the Separation Date or about whom Employee had confidential or proprietary information because of his/her position with Employer.
After a hearing, the trial court determined that the above language was enforceable and issued
a preliminary injunction against Trujillo. However, on appeal, a three-judge panel of the Georgia
Court of Appeals held that the non-solicitation covenant was overbroad and unenforceable.
Specifically, the court found that the language regarding confidential or proprietary information
“impermissibly broaden[ed] the class of customers whom Trujillo could not solicit.”
While there are strong legal arguments that the panel decision in Trujillo is wrongly decided and
inconsistent with the W.R. Grace case, as well as factually distinguishable from many covenant
enforcement actions, the Trujillo decision is the law of the land for now (no appeal was taken
to the Georgia Supreme Court) and employers would be well served to review their existing
covenant language to determine whether any revisions are necessary. The decision in Trujillo
also serves as further confirmation that the enforcement of restrictive covenants in Georgia is an
ever-changing landscape that requires close and constant monitoring.