Take Advantage of Georgia’s New Restrictive Covenants Act

Posted by Neal F. Weinrich on

Georgia’s Restrictive Covenants Act is approaching its three-year anniversary. Although much about the new law is still uncertain, one thing is clear: the law represents a significant shift in Georgia’s restrictive covenants law in favor of employers.

In general, the new law favors the enforcement of reasonable restrictive covenants and, in contrast to Georgia’s historical common law, it allows judges to modify overly broad restrictive covenants to make them reasonable.

It is important to note that the new law only applies to restrictive covenants in agreements that are entered into on or after the date that the new law took effect, May 11, 2011. Thus, employers who have not yet revised their restrictive covenant agreements to take advantage of the new law should consider doing so.

Employers who want to take advantage of the new law should understand the steps to take to ensure their employees’ restrictive covenants are governed by the new law. For example, suppose an employee signed an agreement containing restrictive covenants in 2008. In 2014, that employee was terminated and executed a severance agreement. The severance agreement contains language in which the employee ratifies or reaffirms that he or she will comply with the restrictive covenants in the 2008 agreement. However, the severance agreement does not restate the restrictive covenants and it does not contain new ones. Is the language in the severance agreement in which the employee reaffirms the restrictive covenants from 2008 sufficient to make those covenants governed by the new law?

Probably not. The new law states that it only applies to contracts entered into on or after its effective date (May 11, 2011). The new law also states that it does not apply in actions determining the enforceability of restrictive covenants entered into before the new law’s effective date (May 11, 2011). Thus, if an employer has an employee sign an agreement in which he or she merely ratifies or reaffirms restrictive covenants in a contract that was entered into prior to the effective date of the new law, the employer may not have done enough to have the employee’s restrictive covenants governed by the new law. Instead of having an agreement which merely references and reaffirms the old covenants, an employer who wants to get the benefit of the new law will be better served by having its employee sign a new agreement which contains an entirely new set of covenants (or at a minimum, which restates the old covenants in their entirety).

The new law provides a significant opportunity for Georgia employers to protect their businesses through restrictive covenants that are significantly more likely to be enforced than they were previously. However, employers must be certain they implement new restrictive covenants in a way that ensures the covenants are governed by the new law. Otherwise, an employer’s attempt to benefit from the new law could be ineffectual.