Summary
holding valid a covenant not to compete barring an employee from working as a veterinarian in a limited territory, even though the covenant necessarily prevented the employee from accepting unsolicited business
Summary of this case from Am. Anesthesiology of Ga., LLC v. Northside Hosp.Opinion
A96A2227.
DECIDED MARCH 20, 1997 — RECONSIDERATION DENIED APRIL 4, 1997 — CERT. APPLIED FOR.
Action on employment contract. DeKalb Superior Court. Before Judge Wheeler.
Garcia Powell, Ralph W. Powell, Jr., John W. Daniel, for appellants.
James P. McCrary, for appellee.
Plaintiff Pets Are People Too hired defendant Suzanne Chaichimansour as the manager of one of its veterinary clinics and as a veterinarian. In her employment contract, Chaichimansour agreed that for two years following termination of her employment, she would not manage a veterinary clinic or work as a veterinarian within five miles of the clinic she managed (and at which she worked as a veterinarian) for plaintiff. Nevertheless, she voluntarily left her job and through defendant Best Friend Veterinary Services, Inc., purchased Northeast Expressway Animal Clinic, Inc., an existing veterinary practice located within five miles of plaintiff's clinic. Plaintiff brought this action to enjoin Chaichimansour from managing or providing veterinary services at the newly purchased clinic, and the trial court granted plaintiff's request for a permanent injunction. Concluding that the covenant not to compete is reasonable and enforceable, we affirm.
1. Defendants argue that the covenant not to compete is overbroad, and thus unenforceable, because it prevents Chaichimansour from serving clients she never saw or had contact with while employed by plaintiff.
Covenants not to compete in employment contracts are enforceable if they are reasonable in terms of duration, territorial coverage, and the scope of activity precluded, considering the legitimate business interests the employer seeks to protect and the effect on the employee. See W. R. Grace Co. v. Mouyal, 262 Ga. 464 (1) ( 422 S.E.2d 529) (1992); Watson v. Waffle House, 253 Ga. 671 (2) ( 324 S.E.2d 175) (1985). Using this analysis, we have enforced covenants at least as restrictive as this one, including covenants which precluded competition with respect to clients the employee had not had contact with while working for the employer. See, e.g., Delli-Gatti v. Mansfield, 223 Ga. App. 76, 78 (3) ( 477 S.E.2d 134) (1996) (no provision of medical services for twelve months in Upson County); McAlpin v. Coweta Fayette Surgical Assocs., P.C., 217 Ga. App. 669, 672 (2) ( 458 S.E.2d 499) (1995) (no practice of medicine or surgery for two years in ten-county area, including part of Atlanta); Annis v. Tomberlin Shellnutt Assocs., 195 Ga. App. 27, 30 (2) ( 392 S.E.2d 717) (1990) (no participation in competitive business for three years within fifty mile radius); Moore v. Preferred Research, 191 Ga. App. 26 ( 381 S.E.2d 72) (1989) (no pursuit of similar business for one year in twenty-five mile radius of any of employer's places of business).
In support of their argument that the covenant is overbroad because it precludes competition with respect to clients Chaichimansour did not deal with while employed by plaintiff, defendants cite Darugar v. Hodges, 221 Ga. App. 227, 229 ( 471 S.E.2d 33) (1996) and Vortex Protective Service, Inc. v. Dempsey, 218 Ga. App. 763, 766 (2) (a) ( 463 S.E.2d 67) (1995), in which we did hold covenants overbroad on this ground. Vortex and Darugar in turn relied on W. R. Grace Co., 262 Ga. at 466-467 (2), in which the Supreme Court said that "the prohibition against post-employment solicitation of any customer of the employer located in a specific geographic area is an unreasonable and overbroad attempt to protect the employer's interest in preventing the employee from exploiting the personal relationship the employee has enjoyed with the employer's customers." But this quote was preceded by the statement that a restriction is enforceable as a legitimate protection of the employer's interest as long as it relates only to a specific area in which the employee actually did business for the employer prior to termination. Id. at 466.
The Court in W. R. Grace Co. examined a covenant which had no geographical limitation but only restricted the employee's contact with clients the employee had contacted while working for the employer. In concluding that the covenant was reasonable, it did not hold that all covenants must restrict only the employee's contact with clients he or she had contact with while working for the employer in order to be reasonable. Rather, it focused on the interplay between the territorial limitation and the scope of the prohibition: if the scope of prohibited behavior is narrow enough (e.g., contacting those the employee dealt with while working for the employer), the covenant may be reasonable even if it has no territorial limitation or has a territorial limitation which is very broad. But if the scope of the prohibition is broader, the territorial limitation must be specified and closely tied to area in which the employee actually worked.
See American Software USA v. Moore, 264 Ga. 480 ( 448 S.E.2d 206) (1994) (where territory covered is "anywhere in the United States of America," prohibition on contacting customers with whom the employee did not have a relationship is too broad to be reasonable).
In this case, the territorial limitation is specific, narrow, and closely tied to where Chaichimansour actually worked for plaintiff up until the time she left. Accordingly, this prohibition is reasonable even though it prohibits her from providing veterinary services to anyone within that limited area, without regard to whether she had contact with them when she was working for plaintiff.
Compare Orkin Exterminating Co. v. Walker, 251 Ga. 536 ( 307 S.E.2d 914) (1983) (covenant is overbroad if it is not limited to the employee's contacts and it has geographical restriction which could be read to extend beyond the area in which the employee was actually working just prior to termination). Singer v. Habif, Arogeti Wynne, 250 Ga. 376 (1) ( 297 S.E.2d 473) (1982) (covenant is overbroad if it is not limited to the employee's contacts and the geographical area is tied to operations of the employer rather than the employee);
In Vortex and Darugar, we held that covenants prohibiting competition for clients with whom the employee had not had a business relationship while employed by the employer were unreasonable, even though the covenants in those cases did have territorial limitations. It appears that these cases are distinguishable, since unlike the territorial limitation in this case, the territorial limitations in Vortex and Darugar were somewhat broader than the territory the employee's activities actually covered. But the language in Vortex and Darugar suggesting that prohibitions on competition with respect to customers or potential customers beyond those the employee dealt with during his employment will always be unreasonable, even if in a specified and reasonable geographic area, is disapproved. See Darugar, 221 Ga. App. at 229; Vortex, 218 Ga. App. at 766-767.
2. Defendants also contend the covenant not to compete is unenforceable because the employment contract contains an unenforceable liquidated damages provision which cannot be severed. The liquidated damages provision is in a separate paragraph from the covenant not to compete, however, and that provision's reference to the paragraph containing the covenant not to compete does not make it an integral part of that paragraph. Thus, even if we assume the liquidated damages provision is unenforceable, there would be no reason not to give effect to the severability agreement contained in the contract, and enforce the contract without the liquidated damages clause. See OCGA § 13-1-8.
Judgment affirmed. Andrews, C.J., Birdsong, P.J., Beasley, Johnson, Blackburn, Smith, Ruffin and Eldridge, JJ., concur. McMurray, P.J., concurs in part and dissents in part.
DECIDED MARCH 20, 1997 — RECONSIDERATION DENIED APRIL 4, 1997 — CERT. APPLIED FOR.
1. The majority in Division 1 would "disapprove" language in Vortex Protective Svc. v. Dempsey, 218 Ga. App. 763, 765 (2), 766-767 (2) (a) ( 463 S.E.2d 67), for "suggesting that prohibitions on competition with respect to customers or potential customers beyond those the employee dealt with during his employment will always be unreasonable, even if in a specified and reasonable geographic area. . . ." (Emphasis supplied.) Majority opinion, Division 1, p. 71, ante. But that is precisely the rationale employed by the Supreme Court in defining the parameters of permissible restrictions in post-employment non-compete covenants. "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, [ 248 Ga. 850, 851 (1) ( 286 S.E.2d 297)]; Howard Shultz Assoc. v. Broniec, [ 239 Ga. 181, 183 ( 236 S.E.2d 265)]), but the prohibition against post-employment solicitation of any customer of the employer located in a specific geographic area is an unreasonable and overbroad attempt to protect the employer's interest in preventing the employee from exploiting the personal relationship the employee has enjoyed with the employer's customers. Orkin Exterminating Co. v. Walker, [ 251 Ga. 536, 538 (2) ( 307 S.E.2d 914)], Singer v. Habif, Arogeti Wynne, [ 250 Ga. 376 ( 297 S.E.2d 473)]. Compare Nunn v. Orkin Exterminating Co., 256 Ga. 558 [, 559] (1a) ( 350 S.E.2d 425) (1986) (where the prohibition against soliciting any customer was limited to the geographic area the employee had serviced while employed by his employer)." (Emphasis in original and supplied.) W. R. Grace Company, Dearborn Division v. Mouyal, 262 Ga. 464, 465 (2), 466-467 ( 422 S.E.2d 529). That the Supreme Court did not there overrule Nunn v. Orkin Exterminating Company, 256 Ga. 558, supra, is immaterial, since that court expressly distinguished the Nunn case from others where, "[i]n essence, the court held that a prohibition against doing business with any of an employer's customers, whether or not a relationship existed between the customer and the former employee, is overbroad. The [Supreme Court] later specifically so held in Orkin Exterminating Co. v. Walker, supra." W. R. Grace Company, Dearborn Division v. Mouyal, 262 Ga. 464, 465 (2), 467, fn. 2, supra. Indeed, "a restrictive covenant prohibiting a former employee from rendering services to any client of the employer must contain a territorial restriction expressed in geographic terms because that restriction, which does not take into account whether the employee had a business relationship with that client or whether it was the client who solicited the former employee, is otherwise unreasonable and overbroad. . . ." (Emphasis in original and supplied.) Id. at 467, fn. 3, supra. The ban on contact with "any customer" in the W. R. Grace Co. situation expressly "provided that the restrictions . . . shall apply only to customers or prospects . . . with which the Employee had contact during [the] two-year period [immediately preceding cessation of Employee's employment]," and so is not truly a forbidden blanket prohibition. Id. at 464. The Supreme Court has recently stated without qualification, "`a prohibition against doing business with any of an employer's customers, whether or not a relationship existed between the customer and the former employee, is overbroad.' (Emphasis in original.) [Cit.]" American Software USA, v. Moore, 264 Ga. 480 (1), 483 ( 448 S.E.2d 206).
In my view, the case sub judice is not a proper vehicle for "disapproving" language from the Supreme Court authorities applied in Vortex Protective Svc. v. Dempsey, 218 Ga. App. 763, 765 (2), 766 (2) (a), supra. In Vortex, the post-employment restrictive covenant specified a readily identifiable geographical limitation but contained "no language limiting the application of this restriction to those customers or prospective customers [that employee had] contacted during his employment with Vortex." Id. at 766. It is the continuing viability of Nunn v. Orkin Exterminating Company, 256 Ga. 558 (1) (a), supra, (or perhaps its application) that should be questioned in light of the Supreme Court's subsequent holdings. But the responsibility to "disapprove" language taken from an applicable Supreme Court decision does not rest with this Court.
2. As to the merits of Division 1 of the majority, I concur in the judgment only that the restrictive covenant in this case, involving practitioners of a learned profession, is reasonable in time and scope, and so is enforceable among parties of roughly equal bargaining power and acumen. See Rash v. Toccoa Clinic Med. Assoc., 253 Ga. 322, 324 (2), 325 ( 320 S.E.2d 154); Delli-Gatti v. Mansfield, 223 Ga. App. 76, 78 (3), 80 ( 477 S.E.2d 134).