BFV Perspectives, Noncompete & Trade Secrets, | Dec 01, 2010

The Times, They Are A’Changin’: Georgia’s New Restrictive Covenant Law

For over a century, Georgia law has been extremely hostile with respect to the enforcement of non-competes and other restrictive covenants in the employment context.  An employer who sent a cease-and-desist letter to its former employee after he went to work for a competitor and was calling on his customers often received a defiant letter in response from a Georgia attorney which articulated the various reasons why the employee’s restrictive covenants were unenforceable under Georgia law.  Or, if the employer filed a lawsuit to try to stop the employee from continuing to breach his restrictive covenants, a Georgia judge often refused to enforce the restrictive covenants because the language in the covenants failed to comply with one or more of the rules from the body of Georgia appellate cases addressing restrictive covenants.

Even those employers who were knowledgeable of how strict Georgia restrictive covenants law was and retained a Georgia lawyer skilled in this area to draft their employment agreements faced challenges. If an employer overreached in the scope of its restrictive covenants, it ran the risk that the covenants could be deemed over broad and unenforceable.  And, if a covenant was even partially over broad, the covenant would be rendered unenforceable in its entirety.  Furthermore, if one restrictive covenant in an employment agreement was over broad, other restrictive covenants may be rendered unenforceable as well.  Of course, if an employer “underreached” to reduce or eliminate the risk that the restrictive covenants could be deemed over broad and unenforceable, the covenants might not provide all of the protection that the employer truly wanted.

In sum, historically, the agreements which Georgia employers drafted and had their employees sign many times resulted in less protection from post-employment competition by the employee than the employer wanted.  However, the landscape for Georgia’s restrictive covenants law drastically changed on November 2, 2010.

On November 2, 2010, Georgia voters overwhelmingly approved Amendment One, a ballot referendum to amend the Georgia Constitution to grant the state legislature greater authority to regulate contracts containing restrictive covenants, such as non-competes.  The passage of Amendment One means that legislation significantly changing Georgia’s law on non-competes, which was previously passed by Georgia’s General Assembly, has gone into effect (or will go into effect on January 2, 2011).

What does the new law mean for employers and employees?  One of the biggest changes to the law is that courts now have the ability to modify over broad covenants to make them reasonable.  In other words, under the new law, courts may modify over broad restrictive covenants rather than striking them down entirely.  It, therefore, makes it significantly easier for employers to enforce non-competes and other restrictive covenants against certain categories of former employees.  As such, agreements containing restrictive covenants can afford employers significantly more protection than in the past.  As the law only applies to agreements entered into on or after the effective date of the legislation, employers may wish to revise their employment agreements to take advantage of the new law.

For employees, if an employee is subject to restrictive covenants in an agreement governed by the new law, it will likely be significantly more challenging for an employee to leave his employer and immediately go to work for a direct competitor, or to solicit business from customers he serviced while at his former employer.  Employees should thus consider and seek counsel regarding these issues when they are presented with and asked to sign new employment agreements containing restrictive covenants.

Of course, the new law only applies to certain types of employees, and non-competes with employees who are not covered by the new law are now not permitted.  Specifically, 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 employer.

The meaning of these terms, as well as other issues regarding the new law, are likely to be developed over time as Georgia courts hear and decide cases concerning these issues.  While the “ins and outs” of the new law may be clarified as cases under the new law progress, this much is clear right now:  Georgia’s restrictive covenants law has shifted significantly toward becoming much more employer-friendly.

BFV Perspectives, Noncompete & Trade Secrets, | Dec 01, 2010
Neal F. Weinrich
Neal F. Weinrich

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.