The Expanding Frontiers of the GRCA: Georgia Court of Appeals Upholds Five-Year Non-Compete and Out-of-State Affiliate Enforcement

For business litigants and transactional attorneys navigating the Georgia Restrictive Covenants Act (“GRCA”), OCGA § 13-8-50 et seq., the exact boundaries of “reasonableness” have long been a focal point of litigation. A significant new decision by the Court of Appeals of Georgia, Galloway v. Total Play, LLC, 2026 Ga. App. LEXIS 250, A26A0633 (Ga. Ct. App. May 22, 2026) provides critical insight into how the state's courts interpret out-of-state restrictive covenants and “profit participation” exceptions.

Key Takeaways for Georgia Practitioners & Businesses:

·       Affiliate Operations Matter: An employer can establish that it “does business” in a territory for GRCA geographic restrictions via its operational support of an affiliate entity, even if the employer does not directly hold the customer contracts or book the revenue.

·       Broad Definition of “Seller”: Buying out a key employee's profit-sharing or cash-flow rights can elevate a settlement agreement into the “sale of profit participation” category, unlocking the highly favorable five-year statutory presumption of reasonableness for non-competes.

Factual Background:

The dispute in Galloway arose within the highly competitive “redemption route business,” specifically, the operation and distribution of coin-operated video gaming machines. Total Play, LLC hired William Brent Galloway to manage existing routes and spearhead expansion into new geographic territories, notably Virginia.

Because Total Play and an affiliated company, Liberty Games, LLC, were under common ownership, the companies engaged in extensive cost-sharing. Total Play provided its own gaming equipment and personnel (including Galloway) to build out the Virginia market. However, any finalized gaming contracts signed by Virginia customers were formally executed with Liberty Games.

When a compensation dispute erupted regarding Galloway's entitlement to periodic “extraordinary payments,” the parties executed a Release Agreement in April 2019. Total Play paid Galloway $250,000.00 to settle the claims. In exchange, Galloway agreed to a strict five-year non-compete covenant covering North Carolina and Virginia. Concurrently, the parties executed an Employment Agreement containing a standard two-year post-termination non-compete within his active territory.

Following his voluntary resignation in August 2021, Galloway took confidential corporate reports and deliberately established competing gaming systems in Virginia. Total Play filed suit in Georgia, winning a directed verdict on the issue of breach and securing nominal damages alongside an award of $126,220.53 in attorney's fees.

Can an Employer “Do Business” in a State Without Generating Direct Revenue?

Galloway targeted the geographic scope of the covenants, arguing that because Total Play was not registered to do business in Virginia, possessed no direct customer contracts of its own, and generated no direct revenue there, Virginia could not be reasonably included in the geographic restrictions under OCGA § 13-8-56(2).

The Court of Appeals rejected this formalistic argument, favoring the “totality of the circumstances” approach embedded within the GRCA. Presiding Judge Barnes noted that although Total Play lacked direct revenue in Virginia, it maintained its own physical gaming equipment and personnel in the state. Furthermore, Galloway utilized a Total Play vehicle, cell phone, email address, and business card while actively managing Virginia client accounts.

The Court held that a company has a “legitimate business interest” under OCGA § 13-8-55 in protecting its operational investments and its substantial relationship with its affiliates. Consequently, utilizing an affiliate company to formalize underlying client contracts does not strip an employer of its right to protect its geographic market presence from employee piracy.

The Statutory Leap: When is a Five-Year Non-Compete Presumptively Reasonable?

Typically, non-compete agreements enforced against ordinary employees are subject to the strictures of OCGA § 13-8-57(b), which presumes any post-employment restriction exceeding two years to be unreasonable. However, the trial court applied OCGA § 13-8-57(d)(5), which governs covenants executed by an owner or seller of an equity interest or “profit participation in a business,” elevating the presumptive reasonableness threshold to five years.

Galloway argued this was a misapplication of the law, as he was an employee rather than an equity owner. The Court of Appeals disagreed, looking to trial testimony which established that the “extraordinary payments” resolved by the $250,000 settlement represented a promised “share in the cash flow profits as the business grew.”

Because the Release was executed to buy out Galloway's right to profit participation, he qualified legally as a “seller” under the broad definitions provided in the GRCA (which includes key managers/executive employees receiving consideration in connection with a sale). His relinquishment of profit rights in exchange for consideration subjected him to the lesser scrutiny of the five-year statutory presumption, cementing the enforceability of the longer restriction.