Georgia Voters Approve Dramatic Changes To Employment Restrictive Covenant Laws

The long-awaited and often debated results are in! On Tuesday, November 2, 2010, Georgia voters decided (quite convincingly) to amend the Georgia Constitution, which allowed for the previously passed House Bill 173 to become law (now O.C.G.A. §13-8-50, et seq.). This new statute dramatically alters the law as it pertains to employee non-compete, customer non-solicitation, confidential information and similar contractual provisions between Georgia employers and their employees. The new law became effective on November 3, 2010 and as such, is deserving of prompt attention by Georgia employers.

Until November 2, Georgia’s restrictive covenant laws were governed by published court decisions issued by a wide variety of Georgia judges and based on an even wider variety of specific factual situations, creating a somewhat muddled, very complex and highly unpredictable area of the law. Furthermore, as this case law developed over the past 60 plus years, Georgia courts applied an increased level of scrutiny to employee restrictive covenants, making Georgia one of the most difficult states in which to enforce such covenants. For example, Georgia courts previously required employers to undertake the extremely challenging task of tailoring restrictive covenants executed at the onset of the employment relationship to the employee’s post-employment competition restrictions. In addition, Georgia courts would automatically invalidate a customer non-solicitation provision upon the finding of one technical problem within a noncompete covenant and vice versa. Finally, Georgia courts would not, under any circumstances, modify an otherwise unenforceable covenant so as make it reasonable in the court’s eyes and therefore, enforceable (the “blue penciling” process).

The new statute specifically states Georgia’s new public policy favoring enforcement of these agreements and provides specific guidelines for drafting enforceable agreements. For example, the new statute expressly authorizes a more general description of prohibited, post-employment activities, thus mitigating the requirement that such covenants be narrowly tailored at the onset. The new statute eliminates the prior rules invalidating one covenant based on the unacceptable language of another separate covenant within the same contract. Perhaps, most significant is the new statute’s specific approval of blue penciling, the practice by which Georgia courts are allowed to modify and enforce an otherwise unenforceable covenant.

It is important to note that this new statute only applies to restrictive covenants executed on or after the date the statute was passed – November 2, 2010. The previous, more rigorous legal standards will still apply to agreements entered into before that date. Re-drafting restrictive covenants in line with Georgia’s new statute may be the best option for many Georgia employers. However, Georgia employers should consult with counsel to determine whether they can benefit from this new law. This is especially true when it comes to covenants contained in more complex management and executive agreements that are tied to more generous severance or other compensation plans or those associated with the sale of a business.