Morris Manning & Martin, LLP

New Georgia Restrictive Covenants Act Signed Into Law

05.11.2011

2011 Georgia House Bill 30 (the “Bill”), designed to substantially reenact the substantive provisions of the new Georgia Restrictive Covenants Act (the “Act”) originally passed in 2009, is now law, codified at O.C.G.A.§13-8-50 et. seq.  The Bill passed the Georgia Legislature on April 12, 2011, and was signed into law by Governor Nathan Deal on May 11, 2011, immediately taking effect.  The Act dramatically changes the enforceability of restrictive covenants in employment agreements and corporate contracts entered into on or after the Act’s May 11 effective date.

The  Act changes current case law in five key areas by: 1) expressly permitting restrictive covenants, including noncompete covenants; 2) relaxing certain standards under existing case law for drafting enforceable covenants; 3) granting Georgia courts the power to “blue pencil” (i.e. judicially modify) restrictive covenants; 4) defining common terms which expands the permissible scope of certain covenants under existing case law; and 5) establishing presumptively reasonable time limits for restrictive covenants.

The Act is not a replacement for existing case law, which will still govern covenants entered into prior to the effective date of the new Act.

Furthermore, the Act does not necessarily apply to all employees. The Act specifically limits its application to covenants executed by certain employees, including:

  • Directors, officers, managers, supervisors or key employees.
  • Research and development personnel or others (including independent contractors) in possession of confidential information that is important to the business of the employer.
  • Those in possession of selective or specialized skills, learning or abilities; or customer contacts, customer information or confidential information who has obtained such skills, learning, abilities, contacts or information by reason of having worked for the employer.
  • Franchisees, distributors, lessees, licensees or parties to a partnership agreement; or sales agents, brokers or representatives in connection with franchise, distributorship, lease, license or partnership agreements.

The Act not only applies to employment agreements, but will also affect other corporate contracts and agreements between or among:

  • Distributors and manufacturers;
  • Lessors and lessees;
  • Partnerships and partners;
  • Franchisors and franchisees;
  • Sellers and purchasers of a business or commercial enterprise; and
  • Two or more employers.

Employers with employees in Georgia should consider whether to implement new contracts with employees designed to comply with and extract maximum benefit from the act. Employers should evaluate which of their employees are subject to broader restrictions under the new act. New contracts should include covenants that 1) restrict a broader scope of activity, including a possible noncompete restriction from appropriate employees, 2) are susceptible to judicial modification, if necessary, 3) rely on updated definitions, and 4) remain applicable for the maximum statutory time periods post-termination.