BFV Perspectives, Noncompete & Trade Secrets, | Dec 10, 2010

Georgia’s New Non-Compete Law: Answers to “Frequently Asked Questions”

Q. What is the buzz surrounding the new non-compete law in Georgia about? 

   A. On November 2, 2010, a majority of Georgia voters voted in favor of Amendment One.  The passage of this referendum means that legislation changing Georgia’s law on restrictive covenants, which was previously passed by the Georgia legislature, will go into effect.

Q. What does this mean?

A.  Georgia law has been changed to make it much easier to enforce non-competes and other restrictive covenants against employees who leave their employers and go to work for competitors.

Q. Is the new law already in effect?

A.   Technically, yes.  However, the amendment to Georgia’s Constitution does not go into effect until January 1, 2011.  Until the amendment goes into effect, the new law is arguably unconstitutional. Therefore employers should wait until the beginning of the year before having their employees sign revised employment agreements.

Q.   How has the law changed?

A.  Georgia law was previously very unfavorable toward the enforcement of non-competes and other restrictive covenants in employment agreements.  If a restrictive covenant was found to be overly broad and unenforceable, the entire covenant was ruled invalid.  Also, if a non-compete or non-solicit provision in an agreement was found to be invalid, the other non-compete or non-solicit provisions in that same agreement were deemed invalid as well.  Thus, more often than not, courts ruled in favor of the employee in these cases, and employers were left with little or no protection.  The new legislation changes these rules and permits courts to modify overly broad restrictive covenants rather than striking them down entirely.

Q.   If I am an employer, what do these changes mean for me?

A.  It should become significantly easier for employers to enforce restrictive covenants, such as non-competes and non-solicits, against their former employees.  New agreements may thus be able to provide more protection than was permitted previously.

Q.   Does a company need to give the employee anything in exchange for signing an agreement with new restrictive covenants? 

   A.  Probably not.  Traditionally, courts in Georgia have found that continued employment is sufficient consideration for signing a non-compete.  There is nothing in the new statute to suggest that this rule has changed.  You should therefore consider revising any agreement with employees containing non-competes or other restrictive covenants in early 2011.

Q.   A few years ago, I had an employee leave my company and take a position with a competitor.  He immediately began calling on the customers he serviced while employed at my company, despite the fact that he had signed a non-solicitation agreement.  When I filed suit against him, a court refused to restrict him from soliciting his customers.  Does the new law apply to non-solicitation agreements, and will I be able to prevent similar conduct in the future? 

  A.  Yes, the new law also applies to non-solicits.  Employers will likely be able to prevent such conduct in the future.

Q.   Does the new law apply to all agreements for all employees?

A.  No.  It only governs agreements between employers and certain types of employees.

Q.   What types of employees does the new law cover?

A.  By its terms, the new law applies to three “types” of employees:  1) executive employees; 2) research and development personnel and persons in possession of important confidential company information; and 3) persons in possession of selective or specialized skills, learning or abilities, customer contacts and information, or confidential information who obtained such skills, learning, abilities, contacts or information by working for his or her employer.  The meaning of these terms (and thus the extent of which employees the statute reaches) will likely be developed over time as Georgia courts hear and decide cases concerning these issues.  Non-competes with employees who do not meet the requirements of the statute are now not permitted.

Q.   Does the new law affect agreements I already have with my employees?  And do I need to re-do all of my company’s existing employment agreements?

   A.  The law only applies to agreements entered into on or after the effective date of the legislation, November 3, 2010.  Courts therefore should apply Georgia’s old law to agreements entered into before that date.  Thus, if the restrictive covenants in your company’s employment agreements comply with Georgia’s old law, you do not necessarily need to re-do your agreements.  However, given that under the new law employers are entitled to greater protections, and courts will likely provide employers some protection even if the court finds that a portion of a restrictive covenant is overly broad, employers may wish to revise their agreements.

Q.   The new law sounds less strict.  Do I still need to hire a lawyer to draft my company’s employment agreements?

   A.  Yes.  While the new law provides for greater enforcement of restrictive covenants, there are numerous issues and nuances in the new statute that need to be considered when drafting employment agreements containing restrictive covenants.  It is highly recommended that you engage Georgia counsel if you wish to revise your old employment agreements or draft new ones.

Q.   Does the new law apply to any other types of agreements?

   A.  Yes, it also governs restrictive covenants in leases, partnership agreements, franchise agreements, distributorship agreements, and agreements governing the sale of a business.


Please note that the above information should be viewed only as an overview of the new law, and not as a substitute for legal consultation.

BFV Perspectives, Noncompete & Trade Secrets, | Dec 10, 2010