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Georgia Non-Compete Law: The New Law And How It Applies To You

From our previous posts, we now know that all restrictive covenant agreements entered into on or after May 11, 2011 are subject to the “new” law, let’s take a look at the differences between the old and new law and what this means for you. Take note that unlike the old law, the new non-compete law tends to be more heavily favored towards employers, not employees. We don’t have a lot of case law interpreting agreements under the new law, but the statute itself does provide us with some guidelines.

Although the old law and new law have significant differences, there are some similarities that remain between the two. For example, Georgia courts will still analyze the reasonableness of restrictive covenants by considering:

  • time,
  • territorial coverage,
  • and the scope of activity precluded.

While the old law had to be narrowly tailored as to the restricted territory, the new law allows a greater leeway in outlining the restricted territory. Specifically, under the new law, “[t]he phrase ‘the territory where the employee is working at the time of termination’ or similar language shall be considered sufficient as a description of geographic areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination.”[1]

The new law also gives us some clarity as to what is considered reasonable as to a time constraint in a restrictive covenant. In regards to a former employee [2], Georgia courts will presume that a time restraint of two (2) years or less in duration is reasonable and will presume that a time restraint more than two (2) years in duration is unreasonable “measured from the date of the termination of the business relationship.” [3]

The new law also addresses what the courts will consider as reasonable for the scope of activityprecluded. Under the old law, the restrictive covenant as to scope of activity had to be narrowly tailored and define the employee’s restricted activities, products, etc. Also the restricted activity had to be consistent with the legitimate business purpose of the employer when the agreement was signed. Things have changed with the new law. Now, courts will consider reasonable as to scope of activity precluded in agreements entered into prior to termination “any good faith estimate of the activities, products, or services, or geographic areas, that may be applicable at the time of termination.” [4]

Perhaps the most important element of the new law is that if a court deems any of the above to be unreasonable, the court can now “blue-pencil” or modify a restrictive covenant that would otherwise be unenforceable. This means that Georgia courts have the ability to modify the agreement so that it 1) protects the legitimate business interest and 2) realizes the original intent of the agreement. Basically, if the restrictive covenant is overly broad, the court can step in to make that particular provision enforceable. This is a huge difference from the old law.

DOES THE NEW GEORGIA NON-COMPETE LAW APPLY TO YOU?

The new law applies restrictive covenants containing non-compete agreements, non-solicitation agreements (customers and employees), and non-disclosure of confidential information agreements that are included in agreements between or 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
  • Two or more employers

Not only does the new law apply only to the agreements listed above, but only certain employees are bound by the non-compete restrictions after their employment. The new law provides us with guidelines as to what exactly this means. According to the new law, only those employees who, in the course of their employment perform or function in the following ways are subject to non-competition restrictions (nonsolicitation provisions and nondisclosure of confidential information are not limited to the group of employees listed below) after their employment:

  1. Customarily and regularly solicits for the employer customers or prospective customers;
  1. Customarily and regularly engages in making sales or obtaining orders or contracts for products or services to be performed by others;
  1. Performs the following duties:
    • has a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision of the department;
    • customarily and regularly directs the work of two or more other employees; and
    • has the authority to hire or fire other employees or has particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status or other employees; or
  2. Performs the duties of a “key employee” or of a “professional” [5]

[1] O.C.G.A. § 13-8-53(d).

[2] Keep in mind that the 2 year duration is only considered reasonable as to former employees not associated with the sale of a business or a current or former distributor, dealer, franchisee, lessee of real or personal property, or licensee of a trademark, trade dress, or service mark.

[3] O.C.G.A. § 13-8-57(b).

[4] O.C.G.A. § 13-8-53(c)(1).

[5] The terms “key employee” and “professional” have certain meanings of their own under the new law. The definition of and impact of the new law on these certain types of employees will be explained in a future blog entry.

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