VULCAN STEEL STRUCTURES, INC. Et Al. v. McCARTY Et Al. , 329 Ga. App. 220 ( 2014 )

WHOLE COURT
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.
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October 6, 2014
In the Court of Appeals of Georgia
A14A0803. VULCAN STEEL STRUCTURES, INC. et al. v.
McCARTY et al.
MCFADDEN, Judge.
Vulcan Steel Structures, Inc. and affiliated companies (“Vulcan”) appeal the
order declaring the restrictive covenants in an agreement with former employee Gary
John McCarty to be unenforceable. We hold that the nonsolicitation of customers
covenant in the agreement is unenforceable because it prohibits McCarty from
accepting business from unsolicited clients. And the 2008 agreement is not subject
to blue-penciling, since it was entered into before the effective date of the act revising
the law related to restrictive covenants in contracts. Holton v. Physician Oncology
Svcs., 292 Ga. 864, 870 (3) n. 4 (742 SE2d 702) (2013). Accordingly, because the
nonsolicitation of customers covenant is unenforceable, none of the covenants in the
agreement are enforceable. We therefore affirm.
The facts relevant to the appeal are not in dispute. McCarty was employed by
Vulcan from 1996 until May 9, 2013. On October 13, 2008, McCarty signed an
agreement that contained confidentiality, noncompete, and nonsolicitation covenants.
The nonsolicitation of customers covenant in the agreement provided:
I agree that while employed and for two (2) years following termination
of my employment, I shall not, on my own behalf or on behalf of any
person or entity solicit, contact, call upon, communicate with or attempt
to communicate with any customer of my employer or any representative
of any customer or prospect of my employer, with the intent of
providing any product competitive with engineered steel building
products marketed or manufactured by my employer during the period
of two (2) years immediately preceding termination of my employment.
Provided that the restriction set forth in this paragraph shall only apply
to customers or prospects of my employer, and representatives of
customers and prospects of my employer, with whom I had material
contact during such two year period. “Material contact” exists between
me and each customer or potential customer of my employer if
interaction took place between us in an effort to further a business
relationship with or for my employer.
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When McCarty left Vulcan and was hired by Hornet Steel Buildings, Inc., his
current employer, Vulcan filed this lawsuit against McCarty, Hornet, and two other
Hornet employees. It alleged, among other things, that McCarty had breached the
noncompete and nonsolicitation covenants in the agreement. The defendants sought
a declaration that the agreement was unenforceable as well as the dismissal of all
claims that depended on the enforceability of the agreement. The trial court granted
that relief, and Vulcan filed this appeal.
“[T]he reasonableness of a restrictive covenant is a question of law, which is
subject to de novo review. Moreover, [under the former law] restrictive covenants
that are ancillary to employment contracts receive strict scrutiny and are not
blue-penciled.” Murphree v. Yancey Brothers Co., 311 Ga. App. 744, 747 (716 SE2d
824) (2011) (citations and punctuation omitted).
1. The nonsolicitation of customers covenant.
Vulcan argues that the trial court erred in ruling that the nonsolicitation of
customers covenant is unenforceable. We disagree. Generally, a nonsolicitation
covenant may not validly preclude the employee from accepting unsolicited business
from customers of his former employer. “[An employer] may properly protect itself
from the risk that former employees might appropriate its customers by taking unfair
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advantage of client contacts developed while working for [that employer], but the
company cannot prevent them from merely accepting overtures from those
customers.” Orkin Exterminating Co. v. Walker, 251 Ga. 536, 539 (2) (b) (307 SE2d
914) (1983) (covenant that prohibited former employee from “servicing . . . any
customer or customers for the purpose of selling” services within territory
impermissibly had the effect of preventing him from “merely accepting overtures
from those customers,” id. at 537). The law is clear: “solicitation requires some type
of affirmative action; therefore, a nonsolicitation provision may not contain a bar on
the acceptance of business from unsolicited clients.” Waldeck v. Curtis 1000, 261 Ga.
App. 590, 593 (583 SE2d 266) (2003) (citations omitted).
The specific language at issue here prevents McCarty from “communicat[ing]
with . . . any [Vulcan] customer . . . or any representative of any customer or prospect
of [Vulcan], with the intent of providing any product competitive with engineered
steel building products marketed or manufactured by [Vulcan] during the period of
two (2) years immediately preceding termination of [his] employment.” The plain
language of the covenant bars McCarty from communicating with Vulcan customers,
whether or not he initiated that communication, for the purpose of providing any
product competitive with Vulcan’s. Because this covenant “prohibits not only
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solicitation of [Vulcan’s] former clients, but also the acceptance of business from
unsolicited former clients, regardless of who initiated the contact,” it is unreasonable.
Waldeck, 261 Ga. App. at 590-592 (covenant prohibiting former employee from
“actually effect[ing] the sale to any Customer Account of, or accept[ing] any offer
from any Customer Account for, any product that is one of the [former employer’s]
[p]roducts or that is substantially similar to or competitive with any of the [former
employer’s] [p]roducts” was unreasonable). See also Orkin Exterminating Co. v.
Walker, 251 Ga. at 537-539 (2) (b) (covenant that prohibited former employee from
“servicing . . . any customer or customers [of former employer] for the purpose of
selling” services impermissibly had the effect of preventing him from “merely
accepting overtures from those customers”) (citation omitted); Paragon Technologies
v. InfoSmart Technologies, 312 Ga. App. 465, 467 (718 SE2d 357) (2011) (covenant
that prohibited appellee from accepting unsolicited work from appellant’s former
clients unenforceable). Cf. Murphree, 311 Ga. App. at 744-745 & 749 (1) (upholding
covenant stating that former employee could not “for the purpose of competing with
the [former employer], in any way, directly or indirectly, solicit, divert, or take away,
or attempt to solicit, divert or take away” certain of former employer’s customers
because the covenant “prohibited [former employee] from initiating affirmative action
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to compete with [former employer] by contacting former customers, but the clause
would not have precluded him from accepting unsolicited business from the
forbidden clients”) (citations and punctuation omitted).
Vulcan argues that the trial court erred in ruling the nonsolicitation of
customers covenant to be unenforceable because the crucial language in the covenant
at issue here is almost identical to the language in the nonsolicitation covenant the
Supreme Court upheld in W. R. Grace &c. v. Mouyal, 262 Ga. 464 (422 SE2d 529)
(1992). But the issue in W. R. Grace was not whether the covenant was void for
prohibiting unsolicited contact, but whether it was void because of “the absence of
an explicit geographical limitation.” Id. at 465 (footnote omitted). The court did not
address the issue present here.
To hold as Vulcan proposes would be to conclude that Orkin Exterminating
Co. v. Walker, 251 Ga. 536, was overruled sub silentio when the Supreme Court
decided W. R. Grace. See VATACS Group v. HomeSide Lending, 276 Ga. App. 386,
393 (3) (623 SE2d 534) (2005). Nothing leads to the conclusion that W. R. Grace
purported to overrule the substantive law set forth only nine years earlier in Orkin
Exterminating Co. v. Walker that restrictive covenants cannot prevent an employee
from accepting unsolicited business from his former employer’s customers, and we
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decline to read such into W. R. Grace. Indeed, the Supreme Court itself has noted the
problem with applying W. R. Grace beyond its holding regarding the “‘absence of an
express geographic description of the territorial restriction contained in the
no-solicitation clause of the employment contract.’” See Palmer & Cay of Georgia
v. Lockton Cos., 280 Ga. 479, 481 (2) (629 SE2d 800) (2006) (quoting W. R. Grace).
As Vulcan observes, we relied on W. R. Grace in Covington v. D. L. Pimper
Group, 248 Ga. App. 265 (546 SE2d 37) (2001), to uphold a nonsolicitation covenant
that prohibited a former employee from “communicating with” any client or
prospective client of his former employer, the same language at issue here. We
observed that the Supreme Court in W. R. Grace had upheld a covenant with almost
verbatim language, and concluded that “[a]s the Supreme Court found in W. R. Grace,
. . . the covenant at issue [was] reasonable in terms of duration, territorial coverage
and scope of activity sought to be precluded.” Id. at 269 (2). But as discussed above,
the analysis in W. R. Grace focused on the absence of a geographical limitation in the
covenant, not the scope of prohibited activity, an issue that was not addressed at all.
Further, Covington v. D. L. Pimper did not acknowledge the law that a nonsolicitation
provision may not contain a bar on the acceptance of business from unsolicited
clients. And Covington v. D. L. Pimper predated Palmer & Cay, 280 Ga. 479, where
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the Supreme Court noted the limitations in applying W. R. Grace. For these reasons,
we conclude that to the extent Covington v. D. L. Pimper held that a nonsolicitation
provision validly may bar the acceptance of business from unsolicited clients, it was
wrongly decided. It is therefore overruled.
2. Because the nonsolicitation covenant is unenforceable, the entire agreement
is unenforceable.
“[Former] Georgia law is clear that if one covenant in an agreement subject to
strict scrutiny is unenforceable, then they are all unenforceable.” Cox v. Altus
Healthcare & Hospice, 308 Ga. App. 28, 32 (2) (e) (706 SE2d 660) (2011) (citation
and punctuation omitted). Consequently, because the nonsolicitation of customers
covenant is unenforceable, the trial court correctly concluded that none of the
covenants are enforceable.
Judgment affirmed. All Judges concur.
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