AMERICAN ANESTHESIOLOGY OF GEORGIA, LLC v. NORTHSIDE HOSPITAL, INC. D/B/A NORTHSIDE HOSPITAL GWINNETT ( 2021 )

FIFTH DIVISION
RICKMAN, C. J.,
MCFADDEN, P. J., and SENIOR APPELLATE JUDGE PHIPPS
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS
COURT. ALL FILINGS MUST BE SUBMITTED WITHIN
THE TIMES SET BY OUR COURT RULES.
December 29, 2021
In the Court of Appeals of Georgia
A21A1644. AMERICAN ANESTHESIOLOGY OF GEORGIA,
LLC v. NORTHSIDE HOSPITAL, INC.
PHIPPS, Senior Appellate Judge.
In this action for a declaratory judgment concerning the enforceability of
restrictive covenants, defendant American Anesthesiology of Georgia, LLC (“AAG”)
appeals from the trial court’s order granting the plaintiff’s motion for a judgment on
the pleadings as to Counts One and Two of its complaint.1 AAG contends that the
trial court erred when it ruled that the restrictive covenants at issue here are
unenforceable. For the reasons that follow, we agree and reverse.
1
Although the trial court’s order addressed only Counts One and Two of the
plaintiff’s three-count complaint, the court expressly directed the entry of a final
judgment and determined that there is no just reason for delay as to its rulings on
Counts One and Two. See OCGA § 9-11-54 (b).
AAG is the successor-in-interest to Gwinnett Anesthesia Services, P.C., while
plaintiff Northside Hospital, Inc. d/b/a Northside Hospital Gwinnett and Northside
Hospital Duluth is the successor-in-interest to Gwinnett Hospital System, Inc. For
purposes of this appeal, AAG and its predecessors will be referred to collectively as
“AAG,” and Northside Hospital and its predecessors will be referred to collectively
as “Northside.”
At issue in this appeal is a 2003 “Professional Services Agreement for
Anesthesia and Pain Management Services” (the “Services Agreement” or
“Agreement”) entered into between AAG and Northside. Under the Services
Agreement, AAG agreed to provide Northside with the services of anesthesiologists
(designated as “Specialists” in the Agreement) and physician assistants, certified
registered nurse anesthetists, and other advanced practice nurses and nurse clinicians
engaged in the specialty of anesthesiology (collectively designated as “Physician
Extenders” in the Agreement) during the initial term and any renewal term of the
Agreement. In return, Northside agreed to grant AAG the exclusive right to perform
the services rendered by the Specialists and Physician Extenders for Northside’s
patients while the Agreement remained in effect.
2
By its express terms, the Services Agreement did not establish an employer-
employee relationship between Northside (defined in the Agreement as the “System”)
and either AAG (defined as the “Practice”) or its Specialists or Physician Extenders.
In that regard, the Services Agreement states:
The relation of the Practice, the Specialists, and the Physician Extenders
with the System shall be that of independent contractors practicing their
respective professions as medical specialists, and the Practice, the
Specialists, and the Physician Extenders will at all times be considered
independent contractors and not employees, agents or partners of the
System.
The Services Agreement provisions primarily at issue in this appeal appear in
Sections 9 (a) (“Offers by the Practice”), 9 (b) (“Offers by the System”), and 15 (c)
(“Non-competition and Non-solicitation Covenants”). Section 9 (b) — the
enforceability of which is at issue here — provides, in relevant part:
Recognizing the special nature of the relationship existing, or that will
exist, between the Practice and the Specialists and Physician Extenders
whom it employs or retains in the Practice, and that the recruiting and
training of Specialists and Physician Extenders by the Practice is a
costly and time consuming endeavor, the System agrees that it will not,
without the written consent of the Practice, [while the Agreement is in
effect and for one year after its termination], directly or indirectly,
through any manner or means, impair or initiate any attempt to impair
3
the relationship which exists between the Practice and any Specialists
or Physician Extenders through offers of employment or offers of
contracts for services to be rendered by such Specialists or Physician
Extenders or otherwise.
The parties refer to the above provision as the “no-impairment clause.” Section 9 (b)
further provides that, while the Agreement is in effect and for one year after its
termination, Northside “will not employ or contract with or otherwise permit any
Physician Extender to provide services at the Hospitals[2] without the prior written
consent of the Practice.” The parties refer to this provision as the “no-hire clause.”
Section 9 (a) similarly provides, in relevant part:
Recognizing the special nature of the relationship existing, or that will
exist, between the System and the Department Personnel whom it
employs or retains in the Department,[3] and that the recruiting and
training of Department Personnel for the Department by the System is
a costly and time consuming endeavor, the Practice agrees that it will
not, without the written consent of the Hospital, [while the Agreement
2
The Services Agreement defines “Hospitals” as several specifically identified
medical facilities “and any other facility which is now or in the future may be owned
or operated by [Northside], or any affiliate thereof.”
3
In relevant part, the Services Agreement defines (i) “Department” as “the
Anesthesia Department and Pain Management Service of [Northside]”; and
(ii) “Department Personnel” as “the non-physician . . . personnel employed by
[Northside] and assigned to perform services or functions for the Department.”
4
is in effect and for one year after its termination], directly or indirectly,
through any manner or means, impair or initiate any attempt to impair
the relationship which exists between the System and any Department
Personnel through offers of employment or offers of contracts for
services to be rendered by such Department Personnel or otherwise.
A related provision, Section 15 (c), in turn, provides:
Non-competition and Non-solicitation Covenants. The Practice
covenants and agrees that [while the Agreement is in effect and for one
year after its termination] by the System with cause or by the Practice
without cause, the Practice shall not, on its own behalf or on behalf of
any person[ or entity] (“Person”):
(i) engage in the practice of professional anesthesiology services
within the Service Area [defined as “Gwinnett County, Georgia”]
(except with respect to those obligations to which the System has
expressly consented in writing . . .). The Practice acknowledges
and agrees that: (A) this covenant is intended to protect the
investment the System has made and will continue to make in
establishing the Department, the role of the Practice and the
Specialists in the Department[ and] the System, and (B) the
restrictions contained herein are reasonable in terms of duration,
scope and geographic area; [or]
(ii) solicit, recruit, or induce any employee or independent
contractor of the System who is actively employed or otherwise
engaged by [the] System and who was employed by or otherwise
5
engaged by [the] System at any time during the initial term or any
renewal term of this Agreement to sever his or her relationship
with [the] System or to be employed or otherwise engaged in any
capacity by any other Person conducting a business of practicing
medicine.
By its terms, the Services Agreement automatically renewed each year until
AAG’s parent company gave notice in August 2020 that it intended to terminate the
Agreement on December 4, 2020. In November 2020, Northside filed this action
seeking a judgment declaring that the no-impairment and no-hire clauses in the
Services Agreement are unenforceable and therefore do not bar Northside from
seeking to employ medical providers who have rendered services to Northside
(through AAG) under the Agreement. Northside attached a copy of the Agreement
to its complaint.
The case proceeded to a bifurcated bench trial, in which the parties first
addressed Counts One and Two of Northside’s complaint, which challenged the
enforceability of the no-impairment and no-hire clauses, respectively. After Northside
rested on Counts One and Two, it moved for a judgment on the pleadings as to those
6
counts.4 In its order granting Northside’s motion, the trial court first concluded that
it was required to apply “strict scrutiny” to the no-impairment and no-hire clauses.5
The court further determined that the no-hire clause is unenforceable because it bars
Northside from even unsolicited contact with AAG personnel. On that basis, the court
ruled that the no-impairment clause likewise is unenforceable. Finally, the court
concluded that both covenants failed even if they were subject only to “mid-level
scrutiny.” This appeal followed.
We review de novo a trial court’s ruling on a motion for a judgment on the
pleadings, accepting all well-pled material allegations of the opposing party’s
pleading as true, and taking all allegations of the moving party which have been
denied as false. See Polo Golf & Country Club Homeowners Assn. v. Cunard, 306
Ga. 788, 791-792 (2) (833 SE2d 505) (2019). A judgment on the pleadings should be
granted “only where there is a complete failure to state a cause of action or defense.”
Pressley v. Maxwell, 242 Ga. 360, 360 (249 SE2d 49) (1978). “[I]n considering a
motion for judgment on the pleadings, a trial court may consider exhibits attached to
4
It is unclear on the current record why Northside did not seek a judgment on
the pleadings before trial. AAG also made an oral motion to dismiss Counts One and
Two, which the trial court denied.
5
The concept of “scrutiny” in this context is addressed later in this opinion.
7
and incorporated into the pleadings, including exhibits attached to the complaint or
the answer.” BCM Constr. Group v. Williams, 353 Ga. App. 811, 812 (840 SE2d 51)
(2020) (citation and punctuation omitted).
The enforceability of a restrictive covenant is a question of law that we also
review de novo, Holland Ins. Group v. Senior Life Ins. Co., 329 Ga. App. 834, 837
(1) (766 SE2d 187) (2014), “looking solely to the language of the restrictive
covenant.” Uni-Worth Enterprises v. Wilson, 244 Ga. 636, 641 (2) (261 SE2d 572)
(1979). We review the enforceability of restrictive covenants entered into before May
11, 2011 (as is the case here), based on the law as it stood at that time, before the
enactment of Georgia’s Restrictive Covenants Act, OCGA § 13-8-50 et seq. Burson
v. Milton Hall Surgical Assoc., 343 Ga. App. 159, 160-161 (806 SE2d 239) (2017);
see Ga. L. 2011, pp. 399, 409 § 5. Before that date, Georgia law disfavored restrictive
covenants, and the Georgia Constitution forbade the General Assembly from
authorizing them. Burson, 343 Ga. App. at 161; see also Rash v. Toccoa Clinic Med.
Assoc., 253 Ga. 322, 323 (1) (320 SE2d 170) (1984) (observing, under the former
law, that contracts in general restraint of trade are unenforceable as contrary to public
policy).
8
Nevertheless, while a restrictive covenant may be unenforceable as an
impermissible restraint on trade, it will be upheld “if the restraint imposed is not
unreasonable, is founded on a valuable consideration, . . . is reasonably necessary to
protect the interest of the party in whose favor it is imposed, and does not unduly
prejudice the interests of the public.” West Coast Cambridge v. Rice, 262 Ga. App.
106, 108 (1) (584 SE2d 696) (2003) (citation and punctuation omitted); accord Habif,
Arogeti & Wynne, P.C. v. Baggett, 231 Ga. App. 289, 292 (2) (498 SE2d 346) (1998)
(a restrictive covenant in an employment contract, such as a non-solicit or non-
compete covenant, “is considered in partial restraint of trade and will be enforced if
reasonable”). To determine whether a restraint affecting employment is reasonable,
a court must consider “the nature and extent of the trade or business, the situation of
the parties, and all the other circumstances. A three-element test of duration,
territorial coverage, and scope of activity has evolved as a helpful tool in examining
the reasonableness of the particular factual setting to which it is applied.” Habif,
Arogeti & Wynne, 231 Ga. App. at 292 (2) (citation and punctuation omitted).
In assessing reasonableness, Georgia courts apply three levels of scrutiny to
restrictive covenants: (i) covenants ancillary to employment contracts receive strict
scrutiny; (ii) covenants found in professional partnership agreements receive a middle
9
level of scrutiny; and (iii) covenants ancillary to the sale of a business receive much
less scrutiny. Swartz Investments v. Vion Pharmaceuticals, 252 Ga. App. 365, 368 (2)
(556 SE2d 460) (2001); accord West Coast Cambridge, 262 Ga. App. at 108 (1). Not
every contract, however, neatly fits into one of these three categories. Swartz
Investments, 252 Ga. App. at 368 (2). And the type of contract does not automatically
determine the level of scrutiny. Id.
Rather, we must look to the purposes behind the varying levels of
scrutiny to determine which level is most appropriate for the contract
before us. One starting point is the relative bargaining power of the
parties: [t]he rationale behind the distinction in analyzing covenants not
to compete is that a contract of employment inherently involves parties
of unequal bargaining power to the extent that the result is often a
contract of adhesion. On the other hand, a contract for the sale of a
business interest is far more likely to be one entered into by parties on
equal footing. The unequal bargaining power in the employment context
is one reason covenants in employment agreements are given increased
scrutiny.
Id. at 368-369 (2) (citations and punctuation omitted); see also Rash, 253 Ga. at 325(2) (while an employee enters into an employment agreement “at a great bargaining
disadvantage,” that “would not be expected to be the case in a professional
partnership arrangement”).
10
Another relevant factor is “whether there is independent consideration for the
restrictive covenant itself.” Swartz Investments, 252 Ga. App. at 369 (2). In that
regard, in an employment agreement,
an employee generally receives no consideration separate from his
employment for a restrictive covenant . . . . On the other hand, in a
partnership agreement a partner has not only restricted himself, but he
has also exacted from each of the other contracting parties a like
restriction. The lack of consideration for an employee’s restrictive
covenant is an additional justification for subjecting employment
agreements to heightened scrutiny.
Id. (citation and punctuation omitted); accord Rash, 253 Ga. at 325-326 (2).
Thus, even where a contract is denominated an “employment contract,” it may
be treated as a partnership agreement for purposes of determining the level of scrutiny
to be applied where the parties have relatively equal bargaining power and extract
similar, mutual restrictions from each other, with attendant mutual advantages. See
Pittman v. Harbin Clinic Professional Assn., 210 Ga. App. 767, 769-770 (1) (437
SE2d 619) (1993). And where these factors are present, they “weigh in favor of the
enforceability of restrictive covenants.” Physician Specialists in Anesthesia, P.C. v.
MacNeill, 246 Ga. App. 398, 402 (2) (a) (539 SE2d 216) (2000). With this
background, we turn to AAG’s claims on appeal.
11
1. AAG first challenges the trial court’s determination that strict scrutiny
applies here. The trial court based its ruling in this regard entirely on the fact that the
Services Agreement designates AAG as an “independent contractor” of Northside
and therefore must be treated as an employment agreement. The decisions on which
the trial court relied, however, do not support its conclusion on this issue.
The first case cited by the trial court — Paragon Technologies v. InfoSmart
Technologies, 312 Ga. App. 465 (718 SE2d 357) (2011) — involved an “independent
contractor agreement” pursuant to which InfoSmart provided staffing to a Paragon
client. Id. at 465-466. The agreement at issue included a restrictive covenant that
barred InfoSmart from interfering with Paragon’s relationship with its client and from
accepting an offer to provide services directly to the client during the term of the
agreement and for one year thereafter. Id. at 466. When InfoSmart began providing
services directly to Paragon’s client, litigation ensued, and Paragon sought to enforce
the restrictive covenant. See id. In affirming the grant of summary judgment in favor
of InfoSmart, this Court concluded that: (i) the restrictive covenant was subject to
strict scrutiny because it “was included in an independent contractor agreement,”
which generally is treated like an employment contract for such purposes; and (ii) the
covenant was unenforceable because it “precluded InfoSmart from accepting
12
unsolicited work from Paragon’s former client.” Id. at 467. Importantly, this Court
highlighted that the application of strict scrutiny also was supported by “[a] lack of
evidence showing any consideration for the restrictive covenant, as well as the
one-sided nature of the contract,” which gave Paragon ownership of all intellectual
property created under the agreement, included indemnity and hold harmless
provisions in Paragon’s favor, and appeared to have been drafted by Paragon. See id.
at 466, 467, n. 1.
Contrary to the trial court’s ruling here, Paragon Technologies does not stand
for the proposition that the designation of an agreement as an “independent contractor
agreement” — without more — automatically requires the application of strict
scrutiny. Rather, the decision in Paragon Technologies must be read as limited by its
facts, under which multiple factors supported the application of strict scrutiny. See
312 Ga. App. at 466-467 & n. 1; see also Cline Drive Land Trust v. Wells Fargo
Bank, N. A., 339 Ga. App. 342, 345 (793 SE2d 550) (2016) (“A decision’s holding
is limited to the factual context of the case being decided and the issues that context
necessarily raises. Language that sounds like a holding — but actually exceeds the
scope of the case’s factual context — is not a holding no matter how much it sounds
like one.”) (citation and punctuation omitted). Our conclusion in that regard is in
13
accord with the proposition that it is the substance of a contract and the parties’
relationships — rather than any names given to them — that determine the level of
scrutiny to be applied. See Pittman, 210 Ga. App. at 769-770 (1).
The second case cited by the trial court in support of its application of strict
scrutiny — Jenkins v. Jenkins Irrigation, 244 Ga. 95 (259 SE2d 47) (1979) —
involved neither an employment contract nor an independent contractor agreement,
but rather addressed a covenant not to compete in the sale of business assets, and thus
has no application here. Id. at 99 (2).
The last case cited by the trial court — Anesthesia Healthcare Partners v.
Anesthesia Healthcare Solutions of North Florida, No. 3:11cv149/MCR/EMT, 2012
WL 13024036 (N.D. Fla. Sept. 19, 2012) (“AHP”) — also does not support the
court’s ruling that strict scrutiny applies here, for two reasons. First, after finding that
the case before it involved an independent contractor agreement, the federal district
court in AHP summarily concluded that strict scrutiny applied solely in reliance on
Paragon Technologies, 312 Ga. App. 465. AHP, 2012 WL 13024036 at *4 (B) (1).
As stated above, however, the holding in Paragon Technologies does not reach that
far. Second, the AHP court also found that the covenant not to compete at issue in that
case was unenforceable because, among other reasons, it conferred no benefit on the
14
party seeking to enforce the covenant. 2012 WL 13024036 at *6. Here, however, the
Agreement explicitly identifies the benefits each party seeks to protect via the mutual
covenants: protection of the “special . . . relationship[s]” each party has with its own
personnel, the “recruiting and training” of whom are “costly and time consuming
endeavor[s].”
As discussed above, the level of scrutiny to be applied does not “automatically”
depend on the “type of contract,” but rather depends on the “purposes behind the
varying levels of scrutiny.” Swartz Investments, 252 Ga. App. at 368-369 (2). And
two starting points for making that determination are “the relative bargaining power
of the parties” and “whether there is independent consideration for the restrictive
covenant itself.” Id. at 369 (2). Here, both factors weigh in favor of treating the
Agreement as a partnership agreement and applying mid-level scrutiny.
First, Northside points to nothing in the record suggesting that it and AAG did
not possess relatively equal bargaining power when each business entity, represented
by counsel, entered into the Agreement. In fact, the plain text of the Agreement —
which extracts mutual considerations from each party — is indicative of equal
bargaining power. In addition, the face of the Agreement contains no indication that
it was drafted primarily by either party, and neither party suggests that was the case.
15
Second, the existence of mutual concessions also establishes independent
consideration for the restrictive covenants: in return for Northside’s agreement not
to poach AAG personnel for one year after termination of the Agreement, AAG
agreed not to poach Northside personnel or engage in the practice of anesthesiology
in Gwinnett County during that time.6 See Celtic Maintenance Svcs. v. Garrett
Aviation Svcs., No. CV 106-177, 2007 WL 4557775, at *3 (II) (S.D. Ga. Dec. 21,
2007) (concluding that a non-recruitment provision in a maintenance service
agreement was subject only to intermediate scrutiny because there was no issue of
unequal bargaining power, and the agreement “bound both [parties] not to pirate each
other’s employees”); see also generally Dougherty, McKinnon & Luby, P.C. v.
Greenwald, Denzik & Davis, P.C., 213 Ga. App. 891, 894 (2) (a) (447 SE2d 94)
(1994) (recognizing that a business has a “legitimate need to protect itself from the
risk” that a former employee may take advantage of confidences and rapport with
6
Northside’s passing, conclusory assertion that there is no independent
consideration for the no-hire clause because only the no-impairment clause applies
to both parties splits one hair too many. While each clause is directed toward slightly
different conduct, both, at their core, prohibit employee-poaching for the same period
of time and apply equally to both parties. Regardless, any potential imbalance (in
AAG’s favor) between Section 9 (a) and Section 9 (b) in that regard is re-balanced
by Section 15 (c), which bars AAG from practicing anesthesiology in Gwinnett
County and inducing any Northside personnel to leave Northside to practice medicine
elsewhere for one year following the termination of the Agreement.
16
clients obtained during his employment “to appropriate or ‘pirate’ such clients for
[his] own benefit”).
In light of the above, neither party here bears any resemblance to an individual
independent contractor with no bargaining power subject to an employment
agreement in which the only benefit to the individual is a job. See Rash, 253 Ga. at
325-326 (2); id. at 326 (2) (“[I]nequality of bargaining power is a determining factor
in judging the reasonableness of a restrictive covenant . . . .”); Swartz Investments,
252 Ga. App. at 368-369 (2); Celtic Maintenance Svcs., 2007 WL 4557775, at *3 (II).
Consequently, the Agreement’s designation of AAG as an “independent contractor[]”
weighs little in our analysis. Moreover, given the parties’ relatively equal bargaining
positions and the mutual considerations in the Agreement — including the mutual and
independent considerations with respect to the restrictive covenants — we hold that
the Agreement is more akin to a partnership agreement than an employment contract,
thereby subjecting its restrictive covenants to mid-level scrutiny. See Rash, 253 Ga.
at 325-326 (2); Swartz Investments, 252 Ga. App. at 368 (2); accord Habif, Arogeti
& Wynne, 231 Ga. App. at 290-291 (1) (applying mid-level scrutiny to an
employment agreement of an accountant who “was in a bargaining position
equivalent to that of” his former employer, where all parties to the agreement were
17
subject to “identical restrictive covenants”); Pittman, 210 Ga. App. at 769-770 (1)
(concluding that the employment contracts at issue were “more usefully viewed as
. . . partnership agreements,” given the parties’ equal bargaining power and the fact
that the agreements extracted mutual restrictions on all parties, with attendant mutual
benefits); Roberts v. Tifton Med. Clinic, P.C., 206 Ga. App. 612, 612-613, 616-617
(426 SE2d 188) (1992) (holding that an employment agreement executed by a clinic’s
physician-shareholder was more analogous to a partnership agreement, and upholding
a restrictive covenant in that agreement barring the physician from practicing
medicine within twenty-five miles of a clinic facility for two years after termination
of employment); Celtic Maintenance Svcs., 2007 WL 4557775, at *3 (II). The trial
court therefore erred when it applied strict scrutiny here.
2. AAG next challenges the trial court’s conclusion that the no-hire clause is
unenforceable. The trial court concluded that this provision is invalid for the sole
reason that “it bars [Northside] from even unsolicited contact with AAG’s
employees.” We conclude that the trial also erred in this ruling.
(a) Applying mid-level scrutiny, in a whole-court decision, we upheld the
validity of a restrictive covenant barring a former shareholder and officer in an
accounting firm from rendering accounting services in a seven-county area for a
18
period of two years following his departure from the firm. See Habif, Arogeti &
Wynne, 231 Ga. App. at 291-297 (2). Critically, in that decision, we expressly
rejected the former shareholder’s claim that the covenant was unreasonable because
it barred him from accepting unsolicited business. Id. at 295-297 (2) (c).
Similarly, and also applying mid-level scrutiny, the Supreme Court of Georgia
upheld the validity of a restrictive covenant barring a party from practicing medicine
within twenty-five miles of a city, for a period of three years after termination of his
employment. See Rash, 253 Ga. at 322-323, 325-326 (2). This Court likewise found
that a restrictive covenant that barred a physician from practicing medicine within
twenty-five miles of a facility operated by his former employer, for two years after
termination of his employment, was enforceable under mid-level scrutiny. See
Roberts, 206 Ga. App. at 612-613, 616-617. And in Pittman, 210 Ga. App. at 769-770
(1), we upheld a covenant barring two physicians from practicing medicine within a
thirty-mile radius of a clinic in Rome, for a period of one year after leaving
employment at the clinic, also applying mid-level scrutiny.7 Notably, each of these
7
Although our decision in Pittman did not explicitly identify the scrutiny we
applied as “mid-level,” we implicitly did so when we recognized that: (i) the
employment contracts at issue were more properly viewed as partnership agreements;
and (ii) consideration of the differences between professional partnership agreements
and employment contracts “weighs in favor of the enforceability of restrictive
19
decisions upheld broad bans on “practicing medicine,” without regard to whether any
potential future patients covered by the bans unilaterally sought out medical care
without prior solicitation by the physicians.8
Nevertheless, in Carson v. Obor Holding Co., 318 Ga. App. 645 (734 SE2d
477) (2012), this Court found that a restrictive covenant barring a former employee
from accepting business from any of his former employee’s clients was unenforceable
even under mid-level scrutiny because: (i) “it contain[ed] no territorial restriction, a
fatal flaw”; and (ii) the prohibition on accepting unsolicited business “violates
covenants in the former, and against their enforceability in the latter.” 210 Ga. App.
at 769 (1).
8
In Delli-Gatti v. Mansfield, 223 Ga. App. 76, 77-81 (1)-(3) (477 SE2d 134)
(1996), we similarly upheld a covenant barring a physician from providing medical
care within a single county for one year following the termination of a medical
services agreement. Our decision in Delli-Gatti did not explicitly identify the level
of scrutiny applied, although we highlighted that the employment contract at issue
included a “future option to form a partnership.” 223 Ga. App. at 77 (1). And in
McAlpin v. Coweta Fayette Surgical Assoc. P.C., 217 Ga. App. 669, 670, 673 (2)
(458 SE2d 499) (1995), we upheld a covenant barring a physician from “engag[ing]
in the practice of medicine” within a ten-county area for a period of two years
following the termination of his employment contract, which contemplated a future
partnership. (Punctuation omitted.) While we also did not explicitly identify the level
of scrutiny applied in McAlpin, we highlighted the “distinction between consideration
of restrictive covenants in employer/employee situations as opposed to a partnership
situation, with the former requiring a stricter scrutiny in determining the
reasonableness of the restrictions.” 217 Ga. App. at 672 (2).
20
Georgia public policy because it unreasonably impacts the restricted party’s ability
to make a living and the public’s ability to choose the business or professional it
prefers to contract with.” Id. at 650-651 (1) (b) (citation and punctuation omitted).
When viewed in context with the decisions in Rash, 253 Ga. 322, Habif, Arogeti &
Wynne, 231 Ga. App. 289, Pittman, 210 Ga. App. 767, and Roberts, 206 Ga. App.
612, we read the holding in Carson as limited to its specific factual context. See Cline
Drive Land Trust, 339 Ga. App. at 345. And so viewed, the ruling in Carson that
prohibitions on unsolicited conduct do not survive mid-level scrutiny must be read
in conjunction with the absence of territorial limits in that case and in the context of
accepting unsolicited business from a former employer’s clients. Accord OnBrand
Media v. Codex Consulting, 301 Ga. App. 141, 146 (2) (a) (ii) (687 SE2d 168) (2009)
(holding that, under mid-level scrutiny, a covenant not to compete was unenforceable
because it contained “no specific territorial limits [or] any clear limits on the scope
of the prohibited activity”).
Unlike in Carson, the covenants at issue here address employee-poaching, and
not client- or business-poaching. This distinction is critical. Territorial limits
necessarily play a role in balancing the interests of an employer in protecting the
21
territory in which it conducts business against a former employee’s interests in being
able to support herself. That is because
[t]he goal of a non-competition covenant is to balance two competing
rights: first, the employee’s right to earn a living and his ability to
determine with certainty the prohibited territory; second, the employer’s
interest in customer relationships created or furthered by its former
employee on its behalf and its right to protect itself from the former
employee’s possible unfair appropriation of contacts developed while
working for the employer. Under this analysis, an employer is permitted
to include in such a covenant the territory in which the employee has in
fact performed work.
Habif, Arogeti & Wynne, 231 Ga. App. at 292-293 (2) (b) (citation and punctuation
omitted).
In the context of employee-poaching, however, it matters not whether one’s
employee is hired away to work across the street or across the globe — the harm to
the employer is the same in either case, as is implicitly recognized in the Agreement
provisions to the effect that recruiting and training of each party’s personnel “is a
costly and time consuming endeavor.” See Harrison v. Sarah Coventry, Inc., 228 Ga.
169, 170-172 (1) (184 SE2d 448) (1971) (upholding a covenant barring the appellants
from “solicit[ing] or in any manner attempt[ing] to induce [their former employer]’s
22
salespeople or employees to leave the company,” even absent a territorial limitation)
(punctuation omitted); Sanford v. RDA Consultants, 244 Ga. App. 308, 309, 311 (2)
(535 SE2d 321) (2000) (upholding a covenant barring the appellant from
“attempt[ing] to employ or assist any other person in employing or soliciting for
employment” any of his prior employer’s employees for one year after his
employment ended, despite the absence of a territorial limitation); Celtic Maintenance
Svcs., 2007 WL 4557775, at *4-5 (II) (concluding that an agreement between two
entities not to poach each other’s employees was enforceable under Georgia law,
despite the absence of a territorial limitation); see also Chaichimansour v. Pets Are
People Too, No. 2, 226 Ga. App. 69, 71 (1) (485 SE2d 248) (1997) (observing that
“if the scope of prohibited behavior is narrow enough . . . , the covenant may be
reasonable even if it has no territorial limitation”); see also generally Habif, Arogeti
& Wynne, 231 Ga. App. at 295 (2) (c) (recognizing that “[a] covenant not to compete
. . . is designed primarily to protect the employer’s investment of time and money in
developing the employee’s skills”). This distinction is even more critical given the
facts of this case, which does not involve an employer and employee, but rather
concerns two employers who have mutually agreed not to “pirate” each other’s
personnel for a limited period of time. For this reason, a territorial limit would be
23
largely (if not entirely) superfluous, as the very nature of the covenants at issue here
— which bar only the two parties to the Services Agreement from hiring only each
other’s personnel — is necessarily narrowly limited in a manner that would be largely
analogous to a territorial limitation.9 Consequently, territorial limits play no role in
our analysis on the particular facts presented here, and the decision in Carson does
not control the outcome of this case.10
Notably, neither party has cited, and research has not revealed, any Georgia
appellate decisions other than Carson in which bans on unsolicited contact were
determinative under mid-level scrutiny.11 And for the reasons stated above, when
9
Regardless, the covenants here necessarily (although implicitly) are
territorially limited. Given that Northside operates only in Gwinnett County , the
covenants at issue here — which prohibit AAG from operating in Gwinnett County
within one year of the Agreement’s expiration — bar Northside from hiring AAG
personnel only in Gwinnett County and similarly bar AAG from poaching Northside
employees only out of Gwinnett County.
10
As a result, Northside’s passing, conclusory suggestion that the territory here
is insufficiently limited because Northside potentially could acquire or “expand to
new,” unidentified “locations” (presumably outside of Gwinnett County) at some
unidentified point in the future — which assumes what it seeks to establish — is
irrelevant to our analysis.
11
Each of the decisions on which the trial court relied in concluding that the
ban on unsolicited contact renders the covenants here unenforceable applied strict
scrutiny and thus do not apply here, for the reasons stated in Division 1, above. See
Burson, 343 Ga. App. at 165 (1) (b); Paragon Technologies, 312 Ga. App. at 467;
24
Carson is properly read in the context of its facts and in conjunction with the
decisions in Rash, 253 Ga. 322, Habif, Arogeti & Wynne, 231 Ga. App. 289, Pittman,
210 Ga. App. 767, and Roberts, 206 Ga. App. 612, the decision in Carson does not
support the trial court’s ruling here that the bans on unsolicited contact with each
party’s former employees, standing alone, render the covenants unenforceable under
mid-level scrutiny. Given the particular interests at issue in the employee-poaching
context presented in this case, we hold that the ban on unsolicited contact does not
render the no-hire clause unenforceable under mid-level scrutiny.12 See Rash, 253 Ga.
Cox v. Altus Healthcare & Hospice, 308 Ga. App. 28, 31 (2) (a) (706 SE2d 660)
(2011). While American Gen. Life & Acc. Ins. Co. v. Fisher, 208 Ga. App. 282 (430
SE2d 166) (1993) (physical precedent only), also cited by the trial court, did not
explicitly refer to the level of scrutiny applied, it implicitly applied strict scrutiny
when it held that the invalidity of one non-competition clause rendered the whole
agreement invalid. Id. at 284 (2); see also Swartz Investments, 252 Ga. App. at 368
(2) (covenants subject to strict scrutiny cannot be “blue-penciled”).
12
On a related note, the covenants at issue here are more properly viewed as
analogous to covenants not to compete — “which [are] designed primarily to protect
the employer’s investment of time and money in developing the employee’s skills”
— rather than covenants not to solicit — “which [are] designed primarily to protect
the employer’s investment of time and money in developing customer relationships.”
See Habif, Arogeti & Wynne, 231 Ga. App. at 295 (2) (c) (citation and punctuation
omitted). And a covenant not to compete “may preclude the employee from accepting
related business (whether solicited or not) from any clients (whether previously
contacted by him or not) if the employee is officed in, or is to perform the restricted
activities in, the forbidden territory.” Id.; accord Chaichimansour, 226 Ga. App. at
70-72 (holding valid a covenant not to compete barring an employee from working
25
at 322-323, 325-326 (2); Habif, Arogeti & Wynne, 231 Ga. App. at 291-297 (2);
Pittman, 210 Ga. App. at 769-770 (1); Roberts, 206 Ga. App. at 612-613, 616-617.
(b) It appears that the trial court found no need to engage in further analysis in
light of its conclusion that bans on unsolicited contact (under the “scope of activity”
prong of the three-part test identified in Habif, Arogeti & Wynne, 231 Ga. App. at 292
(2)) disposed of the enforceability of the no-hire clause. Aside from the bans on
unsolicited contact, the trial court did not find any further problems with the scope
of prohibited conduct, and Northside identifies no other issues concerning the scope
of prohibited conduct in the covenants at issue here. Because the material facts are
undisputed, and in the interest of judicial economy, we exercise our discretion to
decide the remaining issues, rather than directing the trial court to address them in the
first instance on remand. See J. M. High Co. v. Arrington, 45 Ga. App. 392, 392 (3)
(165 SE 151) (1932) (where the material facts are undisputed and the issue on appeal
is a question of law, “it is unnecessary to send the case back for another hearing in the
trial court”); accord Ingraham v. Marr, 246 Ga. App. 445, 447 (2) (540 SE2d 652)
(2000).
as a veterinarian in a limited territory, even though the covenant necessarily
prevented the employee from accepting unsolicited business).
26
As we have already determined that territorial limits play no role in our
analysis on the particular facts of this case, we are left only to address whether the
duration of the covenants is reasonable. As discussed above, both the Supreme Court
and this Court have approved of two- and three-year prohibitions on practicing
medicine. See Rash, 253 Ga. at 322-323, 325-326 (2); Habif, Arogeti & Wynne, 231
Ga. App. at 292 (2) (a); Roberts, 206 Ga. App. at 612-613, 616-617. And neither
party has cited any authority indicating that these time limits would not be equally
reasonable in the employee-poaching context. We therefore conclude that the one-
year limitation at issue here is reasonable. See Rash, 253 Ga. at 322-323, 325-326 (2);
Habif, Arogeti & Wynne, 231 Ga. App. at 292 (2) (a); Roberts, 206 Ga. App. at 612-
613, 616-617.
(c) We now turn to Northside’s contention that the no-hire clause is
unenforceable because it does not protect a legitimate business interest of AAG. See
Habif, Arogeti & Wynne, 231 Ga. App. at 294 (2) (c) (“The restricted activities must
be reasonably related to the business interests the employer seeks to protect.”).
Northside’s claim in this regard relies on the proposition that, because the Agreement
prohibits AAG from engaging in the practice of anesthesiology in Gwinnett County
for one year following the termination of the Agreement, AAG has no legitimate
27
interest in keeping its personnel from working in Gwinnett County during that time.
Contrary to Northside’s argument, however, the interest AAG seeks to protect
concerns the considerable resources it has expended to recruit and train personnel that
it does not want poached — by its very nature, that interest is not limited to Gwinnett
County. And Northside’s reliance on decisions in which enforcement of a covenant
would benefit only one party also is misplaced, as the Agreement here equally
benefits Northside by preventing AAG from poaching Northside employees during
the same time period.
(d) Finally, Northside contends that the no-hire clause is unenforceable because
it “unduly prejudices the interests of the public.” In that regard, Northside maintains
that “[t]he community” would suffer unidentified negative effects were Northside to
lose all of its current anesthesiology staff. As observed by the Supreme Court,
however, one community’s temporary loss is another community’s gain when medical
professionals are subject to bargained-for contractual restrictions on practicing in a
certain area. In that vein, the Court highlighted in Rash, 253 Ga. at 326 (3), that,
while enforcing a covenant restricting medical professionals’ ability to practice in one
area would limit the right of potential patients in that area to avail themselves of the
professionals’ services, it also “would afford countless other people in other areas,
28
both in and outside of the state, the opportunity to have [such professionals] in their
areas.” On that basis, the Court found that there was no reason to conclude that the
need for a certain professional’s services in a certain area was “sufficient to outweigh
the law’s interest in upholding and protecting freedom to contract and to enforce
contractual rights and obligations.” Id. On a related note, “Georgia case law, as well
as that of other jurisdictions, has established that covenants such as the ones in issue”
— i.e., in medical professional partnership agreements — “do not conflict with
medical ethical principles or Georgia law requiring informed consent or injure the
public in general.” Pittman, 210 Ga. App. at 770 (3).
To the extent that Northside contends that the particular factual context
presented here weighs against enforcing the covenants — e.g., that Northside will be
unable to replace its anesthesiology staff without hiring AAG employees, or that, for
any other similar reason, Gwinnett County in particular will suffer undue harm by
enforcement of the no-hire clause at this particular time — any such issues are not
relevant to the trial court’s ruling or our analysis in the context of a motion for a
judgment on the pleadings, as our review is limited to the pleadings (and exhibits
attached thereto) and the language of the restrictive covenants at issue. See
Uni-Worth Enterprises, 244 Ga. at 641 (2); BCM Constr. Group, 353 Ga. App. at
29
812. And on a similar note, Northside’s conclusory assertion that AAG’s personnel
will be “unable to make a living if AAG prevail[s]” also raises a factual issue that
plays no role in our analysis on the current procedural posture.13 See Uni-Worth
Enterprises, 244 Ga. at 641 (2); BCM Constr. Group, 353 Ga. App. at 812. For each
of the above reasons, the trial court erred when it concluded that the no-hire provision
is unenforceable and granted a judgment on the pleadings to Northside on that basis.
13
We take this opportunity to highlight that we are not asked here to address
agreements between any individual practitioners, on the one hand, and Northside or
AAG, on the other hand, and we express no opinion on the extent to which our
analysis in this decision would be relevant to any such agreements. We likewise
express no opinion on the potential merits of any challenge that an individual
practitioner may raise to the Services Agreement. We rather address only the ability
of AAG to enforce the Agreement with respect to Northside in this declaratory
judgment proceeding. See Celtic Maintenance Svcs., 2007 WL 4557775, at *4 (II)
(highlighting that the purpose of the non-recruitment provision then at issue before
the court “was not to foreclose [the plaintiff’s] employees from competing or
practicing their chosen trade or profession, but to prevent [the defendant] from
poaching [the plaintiff]’s workers and thereby rendering [the plaintiff] an involuntary
and unpaid employment agency”) (citation and punctuation omitted). Moreover,
because we are not tasked with addressing the interests of any individual
practitioners, we also express no opinion on (a) what type of relief — if any — may
be available to either party for any potential breach of the Agreement by the other or
(b) the merits of any potential challenge that AAG or Northside personnel may have
to the Agreement or to any agreement that individual practitioners may have with
either party. Indeed, Northside itself urges us to “disregard . . . matters outside the
pleadings.”
30
3. Given our rulings in Division 2, the trial court necessarily erred when it
found that the no-impairment clause may not be enforced based entirely on the court’s
finding that the no-hire clause is unenforceable. And Northside does not elaborate any
arguments as to (a) how the no-impairment clause differs materially from the no-hire
clause for purposes of the analysis in this decision or (b) why we should find the no-
impairment clause unenforceable on its own terms.14 We therefore reverse the trial
court’s ruling on this issue
as well, and remand this case to the trial court for further proceedings consistent with
this opinion.
Judgment reversed and case remanded. Rickman, C. J., and McFadden, P. J.,
concur.
14
Notably, as discussed above, while each clause is directed toward slightly
different conduct, both, at their core, prohibit employee-poaching for the same period
of time, and we see no reason why the no-impairment clause would not be subject to
the same analysis as the no-hire clause. See note 6, above. Northside essentially
concurs in this assessment by contending that “[t]he no-impairment provision
operates the same as the no-hire provision; it would prohibit Northside from making
any offers of employment or offers of contracts to AAG’s employees, even if
Northside did not recruit them” and that the “same rationale” applies to the question
of whether each clause is enforceable. (Punctuation omitted.)
31