On Tuesday, November 2, 2010, Amendment One – a referendum to amend Georgia’s Constitution with respect to the Georgia legislature’s authority to legislate concerning restrictive covenants – passed overwhelmingly. Does the referendum’s passage mean that Georgia’s restrictive covenants law has now changed? Unfortunately, the timing of when Georgia law officially changes is not entirely clear.
Under Art. X, § 1, ¶ 6 of the Georgia Constitution, an amendment to Georgia’s Constitution becomes effective on the January 1 following its ratification, unless the amendment or the resolution proposing the amendment provides otherwise. Neither the amendment nor House Resolution 178, which provided for the referendum, states that the amendment would go into effect immediately. Therefore, the amendment to the Constitution goes into effect on January 1, 2011.
House Bill 173 (“HB 173”) is the legislation which will actually change restrictive covenants law in Georgia. HB 173 was passed in 2009, but its effective date was contingent on the passage of an amendment to Georgia’s Constitution. HB 173 provided that if an amendment was not ratified, it would stand automatically repealed. If an amendment was ratified, it would become effective on the day following ratification.
Hence the confusion concerning the timing of when the law goes into effect: HB 173, by its own terms, went into effect on November 3. However, under Art. X, § 1, ¶ 6, the Georgia Constitution will technically not be amended until January 1.
This “gap” was apparently unintended, but raises several interesting issues concerning the new law. Because the amendment has not gone into effect, HB 173 is arguably currently unconstitutional based on Georgia’s Constitution as it reads today. However, on January 1, it would seem that any constitutional defects will be “cured” by virtue of the amendment taking effect.
Of course, HB 173 only applies to contracts entered into after its effective date. Thus, a court would only be forced to address the above issues in a case where the court was asked to make a ruling before January 1, 2011 on a contract entered into after November 3, 2010. The likelihood of such an occurrence may be slim.
Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.
