Eleventh Circuit Wrestles with Georgia's Non-Compete Statute

Georgia's law on non-competes is complicated, as we discussed in June (covering a case decided in September 2023.  Last December, the Eleventh Circuit tried its hand at interpreting Georgia's overlay of a statutory regime, the Georgia Restrictive Covenants Act (GRCA), on its common-law rules on non-competes. Like the Georgia case we discussed in June, this one resulted in a remand with somewhat complicated instructions.

In the Eleventh Circuit case, Charles Baldwin had worked for twenty years for franchisees of Express Oil Change, LLC (Express), beginning in 1998. Mr. Baldwin became a highly-trusted employee of two enterprising Express franchisees, Adam Fuller and Darrell Lamb. When Fuller and Lamb set up business entities, they hired Mr. Baldwin to manage them and gave him something like an equity interest in those businesses, even though he had no control over them and no ownership stake. When Fuller and Lamb sold their 29 stores back to Express, they offered Mr. Baldwin a roughly $2 million payment but required that he agree not to compete with express.  He also had to sign an asset purchase agreement which he was not allowed to see. Mr. Baldwin protested these conditions, but with 80% of his retirement hanging in the balance, he signed both documents and dated them March 8, 2021.

Under the terms of the restrictive covenant, Mr. Baldwin could not work for any competitor within five miles of any business owned by Express or related entities. Express and its affiliates owned over 1100 businesses in 29 states. The term competitor was defined broadly enough to preclude Mr. Baldwin from working in the automotive repair or maintenance industry. It was to last for four years, although the geographic scope was reduced after eighteen months.

Mr. Baldwin went to work for Express, but after twelve weeks, he parted ways with the business because the work conditions were not satisfactory. In August, 2021, Mr. Baldwin wanted to set up his own business, just under five miles from the nearest Express business. He wrote to the company asking for permission, which was denied. He sued to challenge the scope of the non-compete. After removal to federal court, the District Court found the non-compete unreasonable as to duration and scope. It reduced the duration to two years, and it reduced the scope to preclude Mr. Baldwin from work for a competitor within a five-mile radius of any of the Express franchises at which he had previously worked.

In Baldwin v. Express Oil Change, LLC, the  Eleventh first found that the passage of time had mooted part of the challenge to the non-compete.  Because eighteen months had passed, the geographic scope of the non-compete had, by its own terms, been reduced. 

Applying the GRCA to the surviving aspects of the non-compete, the Eleventh Circuit agreed with the District Court that the non-compete's geographic scope was unreasonable. While not adopting the District Court's reasoning in its entirely, the Eleventh Circuit found "not clearly erroneous" the District Court's conclusion that Express's restrictions on Baldwin went much further than necessary to protect its legitimate business interest in preventing Baldwin from “luring away its technicians and, vicariously, its customers.” 

However, the Eleventh Circuit found that the District Court applied the wrong standard under the GRCA for the reasonableness of the non-compete's duration. The District Court had applied a presumption that anything over two years was unreasonable, but here the appropriate presumption was that anything over five years was unreasonable. The longer durational standard applied here because, the Eleventh Circuit concluded, Mr. Baldwin was no ordinary employee, covered by O.C.G.A. § 13-8-57(b), but was a "seller" as defined in O.C.G.A. § 13-8- 57(d).  

The two courts reached different conclusions based on their differing deployments of the rule of construction that prohibits rendering any part of a statute "mere suplusage." The dispute was over whether the phrase "material part" relates to the sale or to the employee's part in that sale. The district court sought to avoid reading "material part"out of the statute by treating it as relating to the employee's part in the sale. The Eleventh Circuit thought the more harmonious reading of the statute resulted from treating "material part" as relating to the nature of the sale. My students would, I think, be happy to learn that courts also struggle in applying canons of construction.

Finally, the Eleventh Circuit rejected Express's challenge to the District Court's authority to take a "blue pencil" to its covenant -- that is, to revise it rather than to either uphold it or strike it down. It upheld the District Court's ruling on geographic scope and remanded the case for the District Court to determine whether Mr. Baldwin could overcome the statutory presumption that a five-year duration to the non-compete was reasonable.