United States: Noncompete News: The More Things Change, The More They Remain The Same: Georgia Supreme Court Addresses Choice Of Law Provisions In Noncompete Context

Historically, Georgia courts have declined to apply another state's law to determine whether to enforce restrictive covenants against a Georgia employee, regardless of whether the agreement stated that another state's law controlled (choice-of-law provision). So, too, Georgia's law has long distinguished between restrictive covenants that are reasonable (in scope, duration, and geographic reach) and those that are unreasonable; the former are enforceable, while the latter are considered "in general restraint of trade." Contracts that are "in general restraint of trade" are "deemed to be contrary to public policy" and "cannot be enforced" in Georgia. O.C.G.A. 13-8-2(a).

In Motorsports of Conyers, LLC v. Burbach (September 2023), the Georgia Supreme Court clarified how a court must determine whether to enforce the parties' foreign choice-of-law provision in a noncompete agreement. Burbach, the Chief Operating Officer of two Harley-Davidson dealerships, executed noncompete agreements. Burbach worked in Georgia, but these agreements had a Florida choice of law provision. Among other things, the agreements prohibited him from accepting employment in any capacity with any competitor located in a 120-mile radius of any of the dealerships. When Burbach quit, he began working for another Harley-Davidson dealership within the 120-mile radius. Motorsports sued Burbach in Georgia, argued that the choice-of-law provision mandated that Florida law apply to his agreement and, accordingly, that the agreement was enforceable under Florida law.

The lower court accepted the Florida choice-of-law provision in the agreement without first determining whether the noncompete was reasonable under Georgia's Restrictive Covenant Act (RCA). Applying Florida law, the lower court determined that the noncompete was enforceable.

The Court of Appeals reversed and, in doing so, correctly identified compliance with Georgia's RCA as the first step in the analysis of whether the public policy exception overrides the Florida choice of law provision. The Court of Appeals determined that the noncompete was unenforceable and void against public policy because, among other things, the noncompete was considered an "in any capacity" agreement. The Court of Appeals correctly determined that the noncompete must be reasonable in terms of time, territory and scope of activity. Because it had no restriction on the scope of activity, it was unreasonable and void.

The Georgia Supreme Court granted review solely to clarify the framework for deciding whether to apply the foreign choice-of-law provision to determine the enforceability of the noncompete. It acknowledged that, while Georgia's RCA is more permissive than prior common law in terms of enforcing restrictive covenants, the RCA "did not disturb the well-settled understanding that restrictive covenants that are unreasonable under Georgia law are not just illegal, but against [Georgia's] public policy." This means that to determine whether applying another state's law to a restrictive covenant would violate Georgia public policy, a Georgia court must first determine whether the restrictive covenant complies with the RCA. If, as written, the restrictive covenant is reasonable under the RCA, the court can honor the choice-of-law provision in the agreement and apply that foreign state's law to determine whether to enforce the agreement. If, however, the restrictive covenant is unreasonable under the RCA, i.e., it violates Georgia's "public policy" and, thus, cannot be enforced, then Georgia law governs the agreement, regardless what the agreement's choice-of-law states. The court reasoned that, when Georgia's General Assembly enacted the RCA, it "carried forward the settled understanding that unreasonable restrictive covenants are general restraints of trade that contravene public policy." Indeed, the RCA expressly states that such agreements are not only "unlawful" but "void and unenforceable." Thus, the Court reasoned, the choice-of-law analysis in the noncompete context hasn't changed over time. Georgia courts may not apply foreign law to enforce a restrictive covenant that would be deemed unreasonable under Georgia law.

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