For over a year, the Georgia General Assembly has been attempting to reform Georgia’s restrictive covenant laws to make it easier for employers to enter into and enforce these agreements. On May 11, 2011, Governor Deal signed a new act that is intended to carry out these reforms and to eliminate questions about the effectiveness of earlier efforts. With this new law, some of the uncertainty that has surrounded earlier legislative efforts regarding restrictive covenants has been removed, and Georgia employers can now consider proceeding under the new law.

Efforts to Change Georgia Law on Restrictive Covenants 

Historically, restrictive covenants received harsh treatment from Georgia courts. Their terms were closely scrutinized for reasonableness, and courts refused to modify overbroad covenants, instead declaring them unenforceable. Given that the reasonableness of a particular restrictive covenant is determined on a case-by-case basis, employers often failed to predict what a court would later consider reasonable. Over time, Georgia became one of just a few states that refused to modify overbroad restrictive covenants, and it was asserted that companies decided not to do business in Georgia because there were no assurances that their restrictive covenants would be enforced.

In 2009, the Georgia General Assembly sought to make it easier to draft and enforce restrictive covenants. However, inconsistencies between the effective dates of the law and its enabling constitutional amendment raised questions about its enforceability.

The Latest Legislative Action

In early January 2011, the General Assembly passed legislation that is substantively the same as the 2009 law to resolve the questions regarding the effective date of the new restrictive covenant law. By its terms, it became effective on the date the Governor signed it, May 11, 2011. Thus, questions about the effective date of the new restrictive covenant law have been resolved for agreements signed in the future. 

The highlights of the new restrictive covenant law include the following:

Standards for Restrictive Covenants. In the past, restrictive covenants have been found to be void and unenforceable because they did not adequately describe the types of activities prohibited or the geographic area of the restraint. Under the new law, “any description that provides fair notice of the maximum reasonable scope of the restraint shall satisfy [the] requirement [for a description], even if the description is generalized or could possibly be stated more narrowly . . . .”  With regard to a post-employment covenant, a “good faith estimate of the activities, products, and services, or geographic areas, that may be applicable at the time of termination shall also satisfy” the requirement of a description. This gives the drafters of such agreements and the employers seeking to enforce them considerably greater breathing room.

Presumptions As to Reasonable Time Limits. The new law will continue to require that restrictive covenants be reasonable as to time, activities covered, and geographic scope, and a customer restriction will continue to be an acceptable substitute for a geographic limitation on solicitation. However, a major question under Georgia law in the past has been what constitutes a reasonable time limit on a restrictive covenant. The new law provides guidance on this question. Rebuttable presumptions are created as to the appropriate time limit.

The Ability of Courts to Change Defective Agreements. The new law will allow courts to “blue pencil” or edit defective restrictive covenant provisions to make them enforceable, provided the courts do not make those provisions less favorable to the employee. The new law also changes a long-standing court-made rule dictating that any defect in a non-competition or non-solicitation covenant in an employment agreement (other than an agreement entered into in connection with the sale of a business) rendered other restrictive covenants in the same agreement unenforceable. Under the new law, a defect in a restrictive covenant provision that cannot be remedied by blue-penciling or judicial modification will not invalidate otherwise valid restrictive covenants elsewhere in the same agreement.

Confidential Information. The new law also covers the protection of confidential information. Traditionally in Georgia, agreements protecting confidential information had to have a reasonable time limit unless the confidential information also qualified as a trade secret. The new law contains no time-limitation requirement, allowing employers to protect confidential information as long as it remains truly confidential.

Practical Implications

The new Georgia law on restrictive covenants may provide an opportunity for employers in the state to change their agreements with future and current employees in ways that are more advantageous to the employer. For at-will employees (that is, employees who are not employed for a fixed period of time), the continuation of at-will employment will provide consideration for a new restrictive covenant agreement. For Georgia employees with fixed-term employment contracts, the employer will have to provide additional consideration (that is, something of value) to support a new restrictive covenant.

Employers are free to seek to obtain new agreements now. However, employers should be aware that the new restrictive covenant law may be attacked on the claim that its enabling constitutional amendment was improperly adopted.

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