Proposed changes in Georgia’s restrictive covenant law have cleared their last legislative hurdle.  Absent a legal challenge, the proposed constitutional amendment to Georgia’s law will be on the November ballot.  If the amendment passes, a major shift in Georgia restrictive covenant law will follow.  Georgia is currently one of the most difficult jurisdictions in the country for employers to successfully enforce non-compete and non-solicitation agreements with former employees.  If adopted, the proposed changes would make the state more hospitable to restrictive covenants and ease their legal enforcement.

The proposed changes are going through a complicated procedure because of the history of earlier efforts to change Georgia law in this area.  In 1990, the Georgia General Assembly passed legislation with provisions much like those in this latest enactment.  However, the Georgia Supreme Court invalidated those provisions as contrary to the Georgia Constitution.  The General Assembly has tried to keep that from happening again by passing a constitutional amendment requiring voter approval.  The constitutional amendment authorizes the actual change in the Georgia Code, which will not go into effect unless and until the voters adopt the amendment in the November election.

If Georgia voters adopt the constitutional amendment, significant changes will occur in this area of the law.  Any employer with an interest in restrictive covenants will need to review its agreements and consider whether they are appropriate for the new environment.  In general, it appears that a new era in this area of the law is fast approaching.  Highlights of the new law include:

·        The Ability to Change Defective Agreements.  Under current Georgia law, any defect in a non-competition or non-solicitation agreement renders the entire covenant unenforceable, even if the defect is hypothetical.  Additionally, when an agreement includes both non-competition and non-solicitation provision, a defect in the non-competition provision can destroy the enforceability of the non-solicitation provision.  The new law would remedy both of these problems, allowing the court to “blue pencil” or edit a defective provision to make it enforceable so long as it did not make the provision less favorable to the employee.  In addition, the law will remove the provision requiring invalidation of both covenants when one is unenforceable.

·        New Law Not As Strict.  In the past, agreements 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 restriction.  This gives the drafters of such agreements, and the employers seeking to enforce them, considerably greater breathing room.

·        Acceptance of New Business From Old Customers Can Be Prohibited.  Non-solicitation agreements are an important type of restrictive covenant, and their potential scope would expand under the new law.  In the past, even when an employer could prohibit former employees from soliciting its customers, it could not prohibit the passive acceptance of business in a non-solicitation agreement.  In other words, if the customer initiated the contact, the former employee could take on the business even if there was a non-solicitation agreement in effect.  This passive acceptance of business can be prohibited under the new law in certain circumstances, eliminating disputes over who contacted whom.

·        Confidential Information.  The restrictive covenant amendment also covers the protection of confidential information.  Currently, agreements protecting confidential information have to have a reasonable time limit unless the confidential information also qualifies as a trade secret.  The new law removes this requirement as well, allowing employers to protect such confidential information as long as it remains truly confidential.

·        Presumptions As To Reasonable Time Limits.  Georgia will continue to require that restrictive covenants be reasonable as to time, activities covered, and geographic scope.  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 a reasonable time limit is on a restrictive covenant.  The legislature has provided guidance on this question.  Rebuttable presumptions are created as to the appropriate time limit.  Where a restrictive covenant is sought to be enforced against a former employee outside of the context of the sale of a business, it is presumed that a restraint of two years or less is reasonable and that more than two years is unreasonable.  In the case of former distributors, dealers, franchisees, lessees of real or personal property, or licensees of trademarks, trade dress or service marks not in connection with the sale of a business, three years or less is presumed reasonable and more than three years is presumed to be unreasonable.  The presumption in the case of the sale of a business is that five years or less is reasonable and greater than five years is unreasonable.