The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.

Skip to Content

Restrictive Covenants: A Cautionary Tale

A recent California decision reinforces the importance of confirming the enforceability of restrictive covenants before they are tested by a departing employee, or, as in that case, by more than a hundred. In February of this year, Timothy W. Turner, then president of CRC Insurance Services, Inc., left to take a position as president and CEO of R-T Specialty LLC., a competing insurance wholesaler. More than 120 CRC employees followed him from CRC’s offices in Chicago, Philadelphia, and California. Multiple suits resulted from this departure, all relating to the enforceability of the restrictive covenants in those employees’ contracts with CRC. Although several of those suits remain pending, the Superior Court of California in Los Angeles ruled on July 13, 2011 that Mr. Turner is under no duty to abide by his agreement with CRC because one or more of its provisions were invalid under California’s Business and Professions Code. The Court separately found that, for this same reason, the 28 California employees who followed Mr. Turner to R-T Specialty are under no duty to abide by the non-solicitation agreements they signed with CRC.

The mass departure of employees to a competitor could be devastating to any company and particularly to companies operating in relationship-based industries. Given this all-too-possible result, careful attention should be paid to the enforceability of restrictive covenants before they are tested. In Georgia, restrictive covenants that were in place prior to May 11, 2011 are subject to a strict scrutiny standard which provides that where any aspect of a covenant is found to be unenforceable, as in the California case, the entire provision will be invalidated. Georgia law changed, effective May 11, 2011, to make both the standard for what is enforceable more clear and to make the standard of review applied to such covenants much less stringent. 

The harsh standard applied to agreements pre-dating the change in Georgia law – as most do – makes it imperative that Georgia employers perform a careful review of agreements containing restrictive covenants to confirm their enforceability.

Furthermore, because agreements entered into on or after May 11, 2011 are given the benefit of Georgia’s new, more employer-friendly law which, among other things, allows courts to simply "modify a covenant that is otherwise void and unenforceable," leaving the remainder of the agreement intact, it greatly benefits Georgia employers to enter into new restrictive covenants with employees where possible. (O.C.G.A. §§ 13-8-53(d) & 13-8-54(b).)
©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.