Georgia Supreme Court Rules on “Loyalty Covenants”
In a recent ruling, the Georgia Supreme Court held that "loyalty covenants," or clauses seeking to prohibit competitive activity by an employee or franchisee during the term of the employment or franchise relationship, are subject to the strict scrutiny standard of review. Atlanta Bread Co. Int’l, Inc. v. Lupton-Smith, No. S08G1815, __ S.E.2d ____ (Ga. June 29, 2009). Finding such clauses no different from non-competition clauses, the Court held that loyalty covenants must be reasonable in time, scope, and territorial limitation.
The covenant at issue in Atlanta Bread Co., which was contained in a franchise agreement, read as follows:
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