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Changes to Georgia Law Concerning Covenants Not to Compete
Changes to Georgia Law Concerning Covenants Not to Compete
Georgia courts have a long history of leaning towards unenforceability with regards to covenants not to compete and other post-employment restrictive covenants. However, in the past 10 to 15 years, case law has provided better guidance for the construction of such covenants; and, accordingly, a trend towards enforceability has emerged. This trend is likely to continue due to a state Constitutional Amendment which passed on November 2, 2010 which grants to the Courts in Georgia the power to “blue-pencil” and modify unenforceable covenants into enforceable covenants – a power which was previously prohibited in covenants between employers and employees. Specifically, pursuant to Georgia House Resolution 178, Article III, Section VI, Paragraph V of the Georgia Constitution was amended as follows:
“The authority granted to the General Assembly in [this amendment] shall include the authority to grant to courts by general law the power to limit the duration, geographic area, and scope of prohibited activities provided in a contract or agreement restricting or regulating competitive activities to render such contract or agreement reasonable under the circumstances for which it was made.”
Moreover, pursuant to Georgia House Bill 173, Chapter 8 of Title 13 of the Official Code of Georgia was amended in the following ways in order to keep business in and attract commercial enterprises to the state of Georgia and to allow for the intent of the parties to survive drafting insufficiencies: (a) by repealing O.C.G.A. § 13-8-2.1 (relating to contracts in partial restrict of trade); and (b) by adding a new Article 4 which sets forth ten new statutes– O.C.G.A. §§ 13-8-50 through 13-8-59 (three of which are further discussed below). Each of these new statutes are applicable to all contracts entered into on and after November 3, 2010.
O.C.G.A. § 13-8-52states that the provisions of this Article 4 shall only apply to contracts among: Employers and employees; 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.
O.C.G.A. § 13-8-53 states that restrictive covenants existing during a contract term shall apply to all persons who execute such an agreement, but that covenants restricting competition after the term of employment shall only be enforceable against sales agents, marketing agents, managers and supervisors, and key employees or professionals.
O.C.G.A. § 13-8-55 states that it is the burden of the party seeking to enforce a restrictive covenant to plead and prove the existence of at least one or more legitimate business interests justifying said restriction and to establish that such restriction is in compliance with O.C.G.A. § 13-8-53.
For more information about the above-referenced Constitutional Amendment and changes to the Official Code of Georgia, check out the following links and/or give one of our firm attorneys a call.
http://www.legis.ga.gov/legis/2009_10/sum/hr178.htm
http://www.legis.ga.gov/legis/2009_10/sum/hb173.htm
By: Carla J. Walker, Attorney
This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.
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