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Georgia Passes New Law That May Enhance Enforceability of Non-Compete Agreements

The Georgia legislature has passed a new law that makes employee restrictive covenants and non-compete agreements easier to enforce.  While House Bill 173 has been signed by the governor, it will not go into effect unless the Georgia Constitution is amended in a statewide referendum in the 2010 general election.  If implemented, Georgia will transition from a state where such agreements can be difficult to uphold to one where such agreements are regularly enforced, thus joining the majority.

The law is conditioned on an amendment to the Georgia Constitution. Article 3, section 6, paragraph 5, of the Constitution currently prohibits the Georgia legislature from passing such a restriction.  The Constitution provides that the “General Assembly shall not have the power to authorize any contract or agreement which may have the effect of or which is intended to have the effect of defeating or lessening competition, or encouraging a monopoly, which are hereby declared to be unlawful and void.”  Consequently, the Constitution must be amended for the new law to pass muster.

If the Georgia Constitution is amended, under the new law a former employee could be restricted from conducting activity that is competitive with that of a former employer within the geographic area where the employee had conducted such activity at, or within a reasonable period of time prior to, termination, provided that such activity and area is described in the  restriction.  A duration of two years or less would be presumed to be reasonable for such a restriction. 

A former employee also could be prohibited from soliciting or accepting, or attempting to solicit or accept, business from an employer’s customers, including actively sought prospects, with whom the employee had material contact.  Restrictions prohibiting a former employee from recruiting or hiring any employees of the employer, or attempting to do so, would be allowed.  A duration of three years or less would be presumed to be reasonable for such restrictions.

The new law also would require courts to rewrite agreements in certain circumstances to make them enforceable (known as “blue penciling”).  Thus, if any portion of a restriction violates the law’s policy, but the restriction is not so clearly unreasonable and overreaching in its terms as to be unconscionable, a court must enforce so much of the restriction as it determines to be necessary to protect the interests of the beneficiaries of the restraint.  The enforceability of a restriction in an agreement also shall be determined independently of the enforceability of any other restriction in the same agreement.

Jackson Lewis attorneys are available to answer your questions about protecting business information, including through the use of restrictive covenants, currently or under the new law.

Related Links
Georgia House Bill 173