Legislation Re-enacting New Restrictive Covenant Act Passes Both Chambers of Georgia Legislature

Posted by Neal F. Weinrich on

On our January 28, 2011 blog entry, we informed you that House Bill 30 had been introduced in the Georgia House of Representatives to “re-enact” House Bill 173.  House Bill 30 was introduced in light of concerns about the validity of House Bill 173.  Specifically, an argument can be made that because House Bill 173 took effect prior to Amendment One (last November’s ballot referendum) taking effect, House Bill 173 is invalid.  House Bill 30 sought to cure this potential timing issue by re-enacting House Bill 173.

House Bill 30 has now been passed by both chambers of the Georgia legislature.  On February 22, 2011, the House of Representatives passed the legislation.  On April 12, 2011, the Senate approved the legislation with an unrelated amendment.  When the House of Representatives rejected the Senate’s amendment, the Senate receded from the amendment and approved the House version of the legislation.  The legislation will now go to Governor Deal for signature.

House Bill 30 has a few minor cosmetic differences from House Bill 173 and one substantive difference.  The substantive difference is a modification to O.C.G.A. section 13-8-56.  In House Bill 173, this section provided for certain presumptions “in determining the reasonableness of a restrictive covenant that limits or restricts competition during the course of an employment or business relationship.”  House Bill 30 revises this language to provide presumptions “in determining the reasonableness of a restrict covenant that limits or restricts competition during or after the term of an employment or business or commercial relationship.”  Also, in House Bill 30, O.C.G.A. section 13-8-56(1) now provides that “during the term of the relationship, a time period equal to or measured by duration of the parties relationship is reasonable; provided, however, that the reasonableness of a time period after the term of employment or business or commercial relationship shall be as provided for in code Section 13-8-57.”

These revisions clarify that the presumption in O.C.G.A. section 13-8-56(1) applies to the reasonableness of the duration of an in-term restriction and the presumptions in O.C.G.A. section 13-8-57 apply to the reasonableness of the duration of a post-term restriction.  House Bill 173’s version of O.C.G. A. section 13-8-56 left it unclear whether the presumptions in that section governed in-term restrictions, post-term restrictions, or both.

Governor Deal is expected to sign the legislation.  Stay tuned for an update on whether and when he does.

The legislation will go into effect upon Governor Deal’s approval and will only apply to contracts entered into on or after the date it takes effect.