Now that the time for appealing has expired, the Eleventh Circuit’s decision in Becham, et al. v. Synthes USA, et al.* is final. In Becham, the Eleventh Circuit clarified that only restrictive covenants entered into on or after May 11, 2011 are subject to Georgia’s new Restrictive Covenants Act. The Becham case resolves the confusion created by Georgia’s multiple attempts to enact comprehensive restrictive covenants legislation.
In 1991, the Georgia Supreme Court rejected the General Assembly’s first attempt to enact such legislation (the “1990 Act”) because it violated the prohibition against restraints of trade in the Georgia Constitution**. However, in April 2009, Governor Perdue signed House Bill 173 (“HB 173”), which: (a) contained new legislation similar to the 1990 Act aimed at making it easier to draft and enforce restrictive covenants in Georgia; (b) was intended to repeal the 1990 Act; (c) because of the constitutional prohibition against restraints of trade, could not take effect until the Constitution was amended; and (d) assuming ratification of the required amendment by Georgia voters at the November 2, 2010 general election, was intended to go into effect the next day, November 3, 2010.
Although voters approved the required amendment, the General Assembly failed to specify an effective date for that amendment. As a result, under the Constitution, the amendment could not take effect until January 1, 2011, almost two full months after the intended November 3, 2010 effective date of HB 173. To address the gap between the intended effective date of HB 173 (November 3, 2010) and the effective date of the amendment (January 1, 2011), the General Assembly passed House Bill 30 (“HB 30”), which Governor Deal signed into law on May 11, 2011. HB 30 states that it shall only apply to “contracts entered into on and after [its effective date] and [it] shall not apply in actions determining the enforceability of restrictive covenants entered into before such date.”
Prior to the Becham decision, although most employment attorneys agreed that prior case law would govern any restrictive covenants entered into before November 3, 2010, the intended effective date of HB 173, there was less agreement on whether HB 173 was constitutional, and whether and how it would apply to any covenants signed between November 3, 2010 and May 11, 2011.
The Becham Court definitively answered those questions by declaring HB 173 unconstitutional. In addressing the validity of covenants originally signed by Mr. Becham in September, 2000, but allegedly “reaffirmed” by Mr. Becham in December, 2010 and/or January, 2011, the Court held the covenants overbroad and unenforceable under common law standards; the broader standards of HB 173 could not apply to save them. Specifically, the Court held the constitutionality of HB 173 must be assessed at the time it was intended to take effect (November 3, 2010); on that date, HB 173 was unconstitutional because the required amendment did not take effect until January 1, 2011. As a result, only covenants entered into on or after May 11, 2011, the effective date of HB 30, are governed by Georgia’s new restrictive covenants legislation (commonly referred to as Georgia’s new Restrictive Covenants Act). Covenants signed prior to May 11, 2011 remain subject to much more stringent common law standards established prior to the new Act.
Although the Becham decision is not published, it remains persuasive authority for all courts within the Eleventh Circuit, and the only definitive word from the Eleventh Circuit on this issue. The Becham case will therefore likely be followed in subsequent federal court cases in Georgia.
In light of the Becham decision, employers should assess (1) whether any agreements executed between November 3, 2010 and May 11, 2011 should be replaced, and (2) whether they now need to implement new agreements to take advantage of the greater protections afforded by the new Act.
For questions regarding Georgia's new Restrictive Covenants Act, please do not hesitate to contact one of our employment attorneys below.
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*No. 11-14495, 2012 WL 1994604 (11th Cir. June 4, 2012)
**Jackson & Coker, Inc. v. Hart, 261 Ga. 371, 372 (1991)