May 12, 2011

New Georgia Restrictive Covenant Legislation: It’s Official (Finally)

With the stroke of Georgia Governor Nathan Deal’s pen yesterday signing into law House Bill 30, Georgia has officially entered a brave new world in the area of restrictive covenants.

As most Georgia employers and human resources practitioners are now aware, on November 2, 2010, Georgia voters approved a measure that amended the state Constitution and thereby cleared the way for significant new legislation impacting Georgia law on non-compete, non-solicitation and non-disclosure agreements. In anticipation that the voters would approve the Constitutional amendment, the General Assembly previously adopted House Bill 173, intending to thereby substantively alter Georgia’s non-compete law. However, several commentators and legislators argued that the new legislation could be unconstitutional because its effective date could be read to have preceded the effective date of the constitutional amendment that authorized its adoption. Consequently, many practitioners were hesitant to rely on the legislation.

After becoming aware of this issue and the potential unconstitutionality of the new statute, the General Assembly re-embodied House Bill 173 in new House Bill 30 in order to re-pass it with an effective date after January 1, 2011, a move designed to solve the potential constitutional issue and to provide more certainty of the law’s validity. House Bill 30 passed both the House and the Senate in the waning hours of the 2011 legislative session. After sitting on the Governor’s desk for several weeks, it was signed into law yesterday, May 11, 2011. The new statute applies only to contracts executed after its adoption. Employers who relied upon the passage of the preceding House Bill 173 should consider having employees execute new agreements, as any contracts signed prior to the Governor’s execution of House Bill 30 could potentially be subject to interpretation under the old Georgia common law, which highly disfavors restrictive covenant agreements.

The new Georgia law provides courts with greater flexibility to enforce, either in full or in part, restrictive covenants contained within employment agreements. This process of modifying an over-broad covenant in order to reflect the reasonable intent and expectations of the parties, and thus make the provision enforceable, is commonly referred to as “blue penciling,” a process previously not followed by Georgia courts except in a “sale of business” context. The new Georgia law also contains specific provisions regarding the types of employees who can be subject to a non-compete agreement and describes the permissible geographic scope and duration of such non-compete provisions.

If you have any specific questions about the new law, or need advice dealing with a specific situation relating to restrictive covenant agreements in Georgia, please contact your employment counsel at Smith, Gambrell & Russell, LLP.

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