Governor Signs New Georgia Noncompete Law

The Georgia Restrictive Covenants Act (RCA) is finally in effect. O.C.G.A. § 13-8-50, et seq. It has been a long time coming. During the 2009 legislative session, the General Assembly passed H.B. 173, which would significantly change the law of restrictive covenants in Georgia. The effective date of the bill, if at all, was contingent upon the passage of an amendment to the Georgia Constitution authorizing legislation to uphold reasonable restrictive covenants.

Last November 2010, Georgia voters approved a constitutional amendment which purported to allow the RCA to become law. The restrictive covenants statute expressly stated that it was to become effective the day following the November 2, 2010 ratification vote and that it was to apply to all restrictive covenant agreements entered into on or after that date. However, immediately after the November 2 ballot, Georgia legislators and other commentators raised issues regarding the nature and wording of the House Resolution, the Constitutional Amendment and the Georgia Constitution in regard to the effective date of the Constitutional Amendment and thus, the effective date of the statute.

Under the Georgia Constitution, a constitutional amendment becomes effective on the January 1 following its ratification, unless the amendment provides otherwise. The amendment was silent, so the Constitutional Amendment presumably went into effect January 1, 2011. Some practitioners still believed the RCA to be effective as of November 3, 2010. Others felt that it would go into effect on January 1, 2011, when the Constitutional Amendment went into effect. Still others questioned whether the legislation was valid at all.

In light of this issue, the Georgia legislature recently passed H.B. 30, which essentially reintroduced the old statute, to be effective upon signature of the Governor. On Wednesday, May 11, 2011, Governor Nathan Deal signed H.B. 30, making the law effective. The introduction to H.B. 30 expressly stated that, “[I]t is the intention of this Act to remove any such uncertainty…, but the enactment of this Act should not be taken as evidence of a legislative determination that H.B. 173 was in fact invalid.”

Nonetheless, practitioners, employers and others who draft and litigate Georgia noncompete agreements will continue to grapple with the effective date of the new law for some time. The following seems clear:

• All agreements entered into before November 3, 2010, are subject to the old law.
• Agreements entered into after May 11, 2011, will be governed by the new RCA.
• Agreements entered into on or after November 3, 2010 through May 11, 2011, will be subject to interpretation as to which law applies.

Without regard to the applicable effective date, the new statute represents a dramatic change to employment restrictive covenant law in Georgia. Key provisions of the new law include: (1) providing for judicial modification of an otherwise overly broad covenant to make it enforceable; (2) allowing the courts to evaluate non-solicitation covenants and non-compete covenants separately and to enforce one without regard to enforceability of the other; and (3) enhancing the enforceability of non-disclosure provisions by defining “confidential information” and eliminating the need for a time limit as to non-trade secret confidential information.