Georgia Enacts Restrictive Non-Compete Law
ATLANTA –Georgia’s governor Nathan Deal signed House Bill 30, to the relief of employers and franchisors. The new law was drafted to resolve a debate surrounding the validity of last year’s voting initiative in which Georgians overwhelmingly expanded the enforceability of restrictive covenants in employment and franchise agreements.
The original act, H.B. 173, passed in 2009, provided guidelines for determining the reasonableness of restrictive covenants and established more lenient court review of restricting an employee in finding work with a competitor.
Last year, Georgians wrote a ballot measure that gave businesses stronger ability to use non-compete clauses in employment and franchise contracts. Georgians voted yes to it.
The new law applies to all restrictive covenants entered into on or after the statute’s May 11, 2011 effective date.
Franchise attorney Randy Edwards of Cochran & Edwards has been very vocal against the new legislation which came into play following his court victory in Atlanta Bread v. Lupton-Smith, 285 Ga. 587 (2009). That’s when Georgia’s Supreme Court reaffirmed that unreasonable restrictions, for example, not allowing a terminated franchisee to open up a similar business for two years, are void and contrary to the public policy of the State.
Franchisors weren’t happy. The International Franchise Association (IFA) and other big business concerns began promoting new legislation to overturn the Atlanta Bread decision. The IFA asserted that multiple Georgia corporations had indicated to policymakers that in-state expansion plans were contingent on the law being changed. Edwards emphatically stated that the facts disprove that.
In light of House Bill 30 being signed last week, Edwards declared, “The fat lady has sung on Georgia’s status as a right to work state. Now, we will deal with the law of unintended consequences. While employers can now prevent their employees from competing, so will their competitors. So you won’t be able to hire that superstar salesman or executive you need to grow your business. To the victor go the spoils—and the consequences.”
Yesterday the law firm of Baker Donelson outlined significant changes in House Bill 30 from the original version. These include:
- Permitting courts to enforce reasonable portions of a restrictive covenant, even where other portions of the covenant were unenforceable. Previously, courts refused to “blue pencil,” or delete, offending provisions, declaring most or all of such covenants unenforceable;
- Defining key terms for many restrictive covenants, such as “confidential information,” “employee,” “legitimate business interest” and “material contact”;
- Presuming reasonable non-compete time restrictions of up to two years following the termination of employment;
- Eliminating time restrictions protecting confidentiality and trade secrets;
- Assuming that non-solicitation covenants apply to all customers with whom the departing employee had “material contact,” which is broadly defined; and
- Allowing non-solicitation provisions to stand without reference to a specific geographic area.
The news alert also states:
- H.B. 30 now clarifies that H.B. 173 applies to all covenants entered into on or after May 11, 2011, although it is less clear how courts will inter restrictive covenants entered into between H.B. 173′s ratification by Georgia voters in November 2010 and May 10, 2011, given confusion that attended the effective date of the Georgia voters’ ratification of H.B. 173.
- H.B. 30 also contains several substantive changes to O.C.G.A. § 13-8-56, which now finds presumptively reasonable post-employment geographic limits that include the area in which the employer does business, provided the distance encompassed is reasonable or particular competitors are listed. Click or H.B. 30 to read full text.