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New Developments in Georgia Non-Compete Law

23-Aug-2013

            In May 2011, the General Assembly enacted the Georgia New Restrictive Covenant Act, O.C.G.A. § 13-8-50, et. seq. (the “new law”). The old law was harsh to employers and required any restrictive covenants to be strictly limited in time and territory. Under the old law, Georgia courts consistently deemed covenants as overly broad and, consequently, unenforceable. This was great for employees who wanted to go work for a competitor company – not so good, however, for the employer. In contrast, the new law features a number of key provisions that favor the employer and the employer’s ability to enforce its restrictive covenants against a former employee.  It also allows courts to blue-pencil or edit out any portion of a restrictive covenant it deems overly broad.  The new law applies only to agreements entered into after May 11, 2011.

 

            While the law has been in effect for a little over two years, Judge Alfred Dempsey, Jr. of the Fulton County Superior Court recently ruled that a former employee’s signature on a May 2012 separation agreement did not “novate” or substitute for previously drafted restrictive covenants and thus bring them under application of the new law. 

 

            In that case, an employee of a scrap metal dealer signed a non-competition and a non-solicitation agreement in February 2011. A little over one year later, in May 2012, the employee was separated from his employment with the company. Upon his separation, he signed a separation agreement that expressly incorporated by reference his February 2011 non-competition and non-solicitation agreements.  Because the separation agreement was signed after the new law went into effect, the company argued that the non-competition and non-solicitation agreements should be analyzed under the new law.

 

            The Court ruled, however, that the covenants must be analyzed under the old law, i.e., the fact that the separation agreement was signed after the new law went into effect did not bring the February 2011 covenants into the new era; for that to occur, the employee would have to enter into new covenants.  The court further ruled that, because the company’s covenants in the February 2011 non-compete agreement were not strictly limited in time and territory, the covenants were unenforceable.   Had the new law applied, the court likely would have blue-penciled or edited out any overly broad portion of the covenants and enforced them.

 

            What does this mean for employers and employees?  Well, as an initial matter, employers should seriously consider having their employees enter into new restrictive covenant agreements to ensure the benefit of the new law.  Additionally, if an employer is providing severance over and above any severance promised in an earlier agreement, it should consider using the additional severance as leverage to have the departing employee enter into new non-compete and non-solicitation agreements.  Employees, on the other hand, need to think long and hard about whether to enter into a new non-compete or non-solicitation agreement. And, employees should note that in Georgia continued at-will employment is adequate consideration for a non-compete agreement, i.e., an employer can fire an employee who refuses to enter into a non-compete agreement.

 

For further information regarding these issues, please contact attorney D. Taylor Harper.


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