GEORGIA'S (POTENTIAL) NEW RESTRICTIVE COVENANT LAW

When you go to the polls on November 2, you will see on the ballot a number of proposed amendments to the Georgia Constitution.  A new statute relating to restrictive covenants such as "noncompete agreements" between employers and employees.

Many people are aware that it can be tricky to produce "noncompete agreements" that are enforceable in Georgia. 

Over the years, some pretty strange wrinkles have been created in Georgia's law of restrictive covenants.  In most states, if a covenant is deemed to be impermissibly broad the court will still allow the covenant to be enforced. In Georgia, if a covenant not to compete or a covenant not to solicit is 99% compliant, it is NOT enforceable.  Furthermore, if a contract has an agreement not to compete with a former employer and also an agreement not to solicit customers of the former employer, and if either one of those provisions is deemed invalid by a court, then the other will be thrown out with it.  The two provisions are deemed to rise and fall together.

If it takes amending the Georgia Constitution in order to do something about the state of the law of restrictive covenants. It is this amendment on which you will be asked to vote on November 2. The statute will establish a more orderly and logical system of rules for restrictive covenants and that is all very nice. 

Will the new law, make Georgia more competitive, and is it favorable to business, to increase the enforceability of restrictive covenants?  It is a two-edged sword.  When there is a company that would like to enforce a restrictive covenant against an ex-employee, there is often a company on the other side of the situation that would like to hire that employee.  (Not in every case - many times the employee is going into business for himself or herself.) So it would appear that being able to enforce restrictive covenants is business-friendly.

The new law would provide that courts can "blue-pencil" an invalid covenant, or enforce it to the extent deemed reasonable.  The institution of blue-penciling will mean that a multitude of what would have been totally unenforceable restrictive covenants will at least be enforceable to some extent. 

There is an upside to the "no blue-penciling" rule.  Most of the disputes over restrictive covenants are disposed of very quickly (in one person's clear favor or the other) and with a minimum of expense, because everyone involved knows how it will turn out if the provision is litigated.  If a restrictive covenant is drafted so that it violates the legal rules: "game over".  In a "blue-penciling world", there is always potential for a long, expensive legal fight over how much of a restriction the employer can be allowed.  The determination that a restrictive covenant is unreasonably broad and unenforceable may just lead to the next fight - the one over how much of a restriction the employer can get.  Remember, there will often be a company wanting to hire that person on the other side of that fight, too.

It is a shame to see deals that people made between them being totally thrown out because of technicalities.

Is It Necessarily Good to Overhaul the Law?

This information may be helpful in enabling you to cast an informed vote on November 2^nd.  Stay tuned for the results of the vote.  Be aware that if the constitutional amendment is ratified in the November 2nd voting, then the new law will apply to restrictive covenants entered into on and after the day following ratification, but it will not apply to restrictive covenants entered into previously.  If the Georgia electorate votes to ratify the proposed amendment, employers should definitely consider revisiting their restrictive covenants with their employees in order to take advantage of the new law.

We thank Ward Council for his conribution to this article. 

Ward Council 

3330 Cumberland Blvd., Suite 500 

Atlanta, GA 30339

(770) 321-9522

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