The Court of Appeals of Georgia held that employment agreements, including restrictive covenants contained therein, that are not ancillary to a sales agreement, are reviewed with strict scrutiny. BB&T Insurance Services, Inc. v. Renmo et al., A21A1114, 2021 WL 4771343 (Ga. Ct. App. Oct. 13, 2021). In reviewing the at-issue employment agreement and restrictive covenants the Court further affirmed the trial court's finding that the restrictive covenants were overbroad and unenforceable. Id.
Restrictive covenants that impose an unreasonable restraint on trade are void as against public policy. Am. Control Sys., Inc. v. Boyce, 303 Ga. App. 664, 667 (1), 694 S.E.2d 141 (2010); Northside Hosp. v. McCord, 245 Ga. App. 245, 247 (2), 537 S.E.2d 697 (2000). And whether restrictive covenants are reasonable is a question of law, which courts review de novo. Vulcan Steel Structures, Inc. v. McCarty, 329 Ga. App. 220, 222, 764 S.E.2d 458 (2014).
In this regard, courts apply “different levels of scrutiny to restrictive covenants depending generally upon whether the contract at issue is an employment contract, a contract for the sale of a business, or a professional partnership agreement[.]” Swartz Invs., LLC v. Vion Pharms., Inc., 252 Ga. App. 365, 368 (2), 556 S.E.2d 460 (2001). So, traditionally, courts “divide restrictive covenants into covenants ancillary to an employment contract, which receive strict scrutiny and are not blue-penciled, and covenants ancillary to a sale of business, which receive much less scrutiny and may be blue-penciled.” Id. And courts have consistently held that “when parties execute separate contracts for the seller's sale of the business and the seller's subsequent employment and each contract contains different restrictive covenants, the restrictive covenants in the employment contract are subject to strict scrutiny.” Am. Control Sys., 303 Ga. App. at 668.
It is likewise important to note that the Georgia Restrictive Covenant Act, enacted on may 11, 2011, permitted blue penciling, in that "a court may modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties." OCGA § 13-8-53 (d). However, the relevant employment agreement at issue in the BB&T Insurance Services, Inc. case was executed in 2001, therefore the Georgia Restrictive Covenant Act does not apply. BB&T Insurance Services, Inc. v., 2021 WL 4771343 at *3 n.8.
In conducting the above analysis, courts consider the relative bargaining power of the parties and whether there is independent consideration for the restrictive covenant. Am. Control Sys., 303 Ga. App. at 667-68. Courts have reasoned that contracts of employment receive strict scrutiny because they can involve “parties of unequal bargaining power,” while contracts for sales of business interests receive less scrutiny because they are more likely to be “entered into by parties on equal footing.” Drumheller v. Drumheller Bag & Supply, Inc., 204 Ga. App. 623, 626 (1), 420 S.E.2d 331 (1992).
The Court reviewed the employment agreement and found that while it references the sales agreement, only the employment agreement contains the relevant restrictive covenants at issue. BB&T Insurance Services, Inc. v., 2021 WL 4771343 at *4. Therefore, the case is analogous to matters where two agreements contain different restrictive covenants rather than the same restrictive covenants. Id. In these situations, the contracts are considered separate with strict scrutiny applied to the employment agreement. Russell Daniel Irrigation Co. v. Coram, 237 Ga. App. 758 (1), 516 S.E.2d 804 (1999).
The Court also held that the employment agreements did not have consideration independent from Renmo's employment because Renmo was only a minority shareholder of the selling business, was not involved in the negotiation of his employment agreement (including the restrictive covenants), similar restrictive covenants were entered into by non-shareholding employees of the seller, the terms of the restrictive covenants did not relate to the seller in any way, and the terms entirely relate to BB&T including a period that begins with termination of employment with BB&T. BB&T Insurance Services, Inc. v., 2021 WL 4771343 at *5.
The Court of Appeals of Georgia affirmed the trial court's holding that the employment agreement was not ancillary to the sales agreement. Further, once reviewing the restrictive covenants, the Court of Appeals found that they were overbroad and unenforceable because (1) the non-competition provision was not limited to BB&T customers with whom Renmo had material contact with while employed by BB&T and the types of insurance products he was prohibited from selling were not limited to those that Renmo sold while at BB&T (id. at 7), and (2) the non-recruitment/solicitation provision prohibited Renmo from "supporting" any BB&T employee's personal decision to leave the company and does not protect a legitimate business interest (id. at 8).