Summary
holding that a restrictive covenant that had no definite geographic-area limitations as to competition, solicitation of clients, or recruiting of employees rendered the covenant unenforceable for being overbroad
Summary of this case from CMGRP, Inc. v. GallantOpinion
A01A0032.
DECIDED: MARCH 5, 2001.
Breach of contract. DeKalb Superior Court. Before Judge Hancock.
Theodore H. Lackland, for appellant.
Hewitt, Katz Dumich, Robert N. Katz, for appellee.
Capricorn Systems, Inc., employer/plaintiff, sued Dinesh Pednekar, employee/defendant, for breach of an employment contract that required the computer consultant to either complete a job assignment or provide one month's minimum notice prior to voluntary termination of employment and provided for $50,000 in liquidated damages. In addition to the unenforceable liquidated damage provision, the contact also contained two unenforceable restrictive covenants that were void. However, the contract contained a severability clause that allowed the other contract terms to survive. The complaint contended that defendant's leaving the plaintiff's employment without a month's notice caused it damage with the client. However, plaintiff neither pled nor proved any damages other than the liquidated damages, which it sued to recover. The trial court granted summary judgment to the defendant, because the void restrictive covenants voided the entire contract. Plaintiff appeals. We reverse, because the termination notice provision is not a restrictive covenant, and the entire contract was not voided by the void provisions.
1. Plaintiff contends that the trial court erred in treating the employee pre-termination notice as a restrictive covenant. We agree.
The employee's contractual duty to provide a specified termination notice to the employer under the contract is not a restrictive covenant and does not constitute a covenant that falls along with the void restrictive covenants in the contract. See generally Kuehn v. Selton Assoc., Inc., 242 Ga. App. 662, 667 (5) ( 530 S.E.2d 787) (2000).
Notice provisions in contracts "must be reasonably construed." APAC-Ga. v. Dept. of Transp., 221 Ga. App. 604, 606 (2) ( 472 S.E.2d 97) (1996). The purpose of the notice in the contract by the employee of voluntary termination "is not difficult to fathom." State Hwy. Dept. v. Hall Paving Co., Inc., 127 Ga. App. 625, 628 ( 194 S.E.2d 493) (1972). Generally, notice by the employer is required under an employment contract so that the employee has an opportunity to seek other employment prior to actual termination of employment. See King Ind. Realty, Inc. v. Rich, 224 Ga. App. 629, 630 (2) ( 481 S.E.2d 861) (1997). Likewise, here, under the contract terms, the employee was required to provide a minimum month's notice, if the client for which he was performing consulting work required it, so that the client would not feel abandoned, and the work could be salvaged by the employer timely finding a replacement without any interruption of work; such provision was to protect both the client and the employer. A contract provision of requiring a specified prior notice of termination is reasonable to allow the employer to prepare for an orderly transition and enforceable through special damages resulting from a sudden quitting, and in the absence of special damages, nominal damages are recoverable. See Belcher v. Thompson Newspapers, Inc., 190 Ga. App. 466, 467 ( 379 S.E.2d 204) (1989). Such contract provision does not constitute a restrictive covenant, because it requires employment to continue under the contract terms for an additional minimum of a month at the client's election after notice of termination of employment. Thus, the trial court erred as a matter of law in treating such provision as a restrictive covenant that falls with other restrictive covenants.
2. Plaintiff contends that the trial court erred in finding that the entire contract was void, because the contract contained not only void restrictive covenants and a void liquidated damage clause, but also contained a severability clause. We agree.
(a) The non-compete and non-solicitation covenant is overly broad and unenforceable. It provided:
For a period of twenty four (24) months following the completion of project, the employee unconditionally agrees to not deal directly, indirectly, or by any other means, either individually or in association with another individual or organization, with Corporations's customer or their client to whom he is assigned for on-site consulting project.
Such provision prohibits the defendant from soliciting any customer of the plaintiff anywhere that it does business, even though the defendant has had no relationship with such customer or the customer's clients, which is an overbroad and unreasonable territory. This restriction also affects any activity of employment with a competitor, because there is no restriction to only such activity that defendant carried on for the plaintiff or that defendant carried on for the client as part of an on-site consulting project.
Where a former employee is prohibited from working in any scope or capacity of employment for a competitor of the former employer, such covenant not to compete is unenforceable as being overly and unreasonably broad. Firearms Training Sys., Inc. v. Sharp, 213 Ga. App. 566, 567 ( 445 S.E.2d 538) (1994); Fleury v. AFAB, Inc., 205 Ga. App. 642, 643 ( 423 S.E.2d 49) (1992). The former employer has no reasonable interest that must be protected from the former employee being prohibited from working in any capacity for a competitor, and such a restrictive covenant is void. See Howard Schultz c. v. Broniec, 239 Ga. 181, 184-185 (2) ( 236 S.E.2d 265) (1977); Brunswick Floors, Inc. v. Guest, 234 Ga. App. 298, 300-301 ( 506 S.E.2d 670) (1998); Harville v. Gunter, 230 Ga. App. 198, 200 (2) ( 495 S.E.2d 862) (1998).
(b) The next covenant is against solicitation of clients, employees, or business opportunity, and such is even broader and unenforceable as to territory and non-relationships with clients or employees:
The employee shall not, for a period of two (2) year after termination thereof, whether voluntarily or involuntarily, with or without cause, directly or indirectly, either for self or in conjunction with or on behalf, call upon, solicit, divert, take away, attempt to accept or take away: (a) any employees of the Corporation; (b) any business opportunity of the Corporation which became known to the Employee while employed by the Corporation; (c) any of the Corporation's clients; or (d) any of the Corporation's clients' clients whose identity became known to the Employee or with whom the Employee may have had contact during the course of his employment with the Corporation.
The nonsolicitation of customers covered any and all customers of the plaintiff, regardless of whether defendant had ever worked for them or had any relationship established during employment any where. Therefor, such provision was void as overly broad and unreasonable in territory and in absence of relationships needing protection, because the relationships were developed during the employment. See W. R. Grace c. v. Mouyal, 262 Ga. 464, 465 (1) ( 422 S.E.2d 529) (1992). Further, such restrictive covenant had no definite geographic area limitations as to competition, solicitation of clients, or recruiting of employees, which also renders the covenant unenforceable for being overbroad. Rollins Protective Svcs. Co. v. Palermo, 249 Ga. 138, 140 (1) ( 287 S.E.2d 546) (1982); Ceramic Metal Coatings Corp. v. Hizer, 242 Ga. App. 391 ( 529 S.E.2d 160) (2000); Club Properties, Inc. v. Atlanta Offices-Perimeter, Inc., 180 Ga. App. 352, 355 (3) ( 348 S.E.2d 919) (1986).
(c) Liquidated damages are not favored when they act as a penalty, because they can be abused to coerce compliance with abusive or void noncompetition contract provisions, as in this case. See O.C.G.A. § 13-6-7; AFLAC, Inc. v. Williams, 264 Ga. 351, 354 (2) ( 444 S.E.2d 314) (1994); Miazza v. Western Union Tel. Co., 50 Ga. App. 521, 522-523 (1) (178 S.E. 764) (1935). In this case, liquidated damages were arbitrarily set at $50,000, which bears no rational relationship to actual or potential damages for any breach of contract. Further, the method to calculate special damages for the breach of contract sued for was set by contract at $10 per hour for replacement service if the employee terminated without notice for the month's period, which maximum amount would be $1,600 under the contract. In a supplemental provision of the contract, if the employee terminates employment prior to completion of an assignment, then "employee unconditionally agrees to pay for all damages as claimed by Corporation, Corporation's customer or client, including attorney fees," and such damages would include any performance penalty that such termination causes the Corporation. There was no evidence that the customer, Saic, elected to have the defendant work for a month or would have made such decision. Thus, asking for liquidated damages in this case where no special damages have been pled or shown, indicates that such damages were an unenforceable penalty and not intended as a true liquidated damages provision.
For liquidated damages to be recoverable under a contract, (1) injury caused by the breach must be difficult or impossible of estimation in fact and not merely contended by the contract; (2) the parties must intend to provide for damages; and (3) the sum stipulated must be a reasonable pre-estimate of the probable loss.Oasis Goodtime Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga. App. 641, 644 (4) ( 507 S.E.2d 823) (1998); Wehunt v. ITT Business C. Corp., 183 Ga. App. 560, 561 (2) ( 359 S.E.2d 383) (1987). In determining the validity of a liquidated damages provision, an important distinction must be drawn between damages that are difficult to accurately determine in monetary terms and damages which can be accurately established, although through a complicated procedure. Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 227-228 ( 279 S.E.2d 521) (1981). Here, the special damages can be easily calculated as substantially less than the liquidated damages in the contract; therefore, the liquidated damages were intended to be an unenforceable penalty.
In this case, $50,000 liquidated damages for a failure to provide a month's notice, when there are two other contract provisions which set forth how to accurately calculate special damages in such case constitutes an unenforceable penalty. "Thus, even if we assume the liquidated damages provision is unenforceable, there would be no reason not to give effect to the severability agreement contained in the contract and enforce the contract without the liquidated damages clause. See O.C.G.A. § 13-1-8." Chaichimansour v. Pets Are People Too, 226 Ga. App. 69, 72 (2) ( 485 S.E.2d 248) (1997).
Notwithstanding that the liquidated damages clause is unenforceable and no special damages have been pled, defendant is not entitled to summary judgment for failure to prove any damages in this case, because in every breach of contract, a plaintiff is entitled to recover nominal damages. See O.C.G.A. § 13-6-6; Belcher v. Thomson Newspapers, Inc., supra at 467; Don Swann Sales Corp. v. Parr, 189 Ga. App. 222, 225 (2) ( 375 S.E.2d 466) (1988).
d. Void restrictive covenants, which cannot be blue-penciled out of the contract, do not void the entire contact when the contract contains a severability clause or when other valid post- termination provisions are expected to be performed. SeeJohnstone v. Tom's Amusement Co., Inc., 228 Ga. App. 296, 297 (1) ( 491 S.E.2d 394) (1997); Sunstates Ref. Svcs., Inc. v. Griffin, 215 Ga. App. 61, 63 (2) ( 449 S.E.2d 858) (1994). Thus, the other contract terms survive the void terms, provided that the contract is severable.
The intent of the parties determines whether the entire contact is void if one provision is void, because the entire contract is the entire consideration for both parties, or the valid provisions survive as part of multiple consideration for the parties. Carlton v. Moultrie Banking Co., 170 Ga. 185, 196-197 (152 S.E. 215) (1930). A severability clause indicates the intent of the parties where the remainder of the contract can exist without the void portion. O.C.G.A. § 13-1-8; Charles v. Leavitt, 264 Ga. 160 ( 442 S.E.2d 241) (1994); Horne v. Drachman, 247 Ga. 802, 805-806 (2) ( 280 S.E.2d 338) (1981); Grove v. Sugar Hill Inv. Assoc., Inc., 219 Ga. App. 781, 785-86 (3) ( 466 S.E.2d 901) (1995);Nat. Consultants, Inc. v. Burt, 186 Ga. App. 27, 34-35 (3) ( 366 S.E.2d 344) (1988). Thus, the remainder of the contract survives the severance of the void portions of the contract in this case.
Judgment reversed. ANDREWS, P.J., and MILLER, J., concur.