The Five Most Important Things Your Business Needs to Know Now About Georgia’s New Restrictive Covenant Law
Georgia’s new restrictive covenant law will become effective on November 3, 2010, if, as expected, Georgia voters ratify a proposed constitutional amendment on this year’s ballot. Here are five things your business needs to know right now:
- Georgia’s new covenant law is likely to become effective immediately on November 3, 2010 – but will only apply to new contracts entered on or after that date. The stage is set for Georgia voters on November 2 to approve an amendment to the Georgia Constitution that will dramatically change the landscape of employment restrictive covenants in Georgia. If the amendment is approved, as expected, the new law will take effect immediately – but only prospectively. Contracts dated prior to November 3 will continue to be evaluated (stricken or upheld) according to the traditional strict scrutiny analysis. Only new contracts entered into on or after November 3 will be governed by the dramatically different new law.
- Non-compete covenants are back! Under the new law, non-competition covenants will reemerge as viable means for Georgia employers to protect their investments in human capital. This means that qualifying employees can be prohibited from competing for up to two (2) years in a specified geographic territory. Under the new law, the covenant need not precisely define the geographic scope as long as the maximum geographic scope can be reasonably determined at the time of termination. Thus, it will be essential to specify the maximum geographic scope to a departing employee upon separation.
- Customer non-solicitation covenants remain a good option, and are now even better. Employers will be even better positioned to prohibit former employees from soliciting clients on behalf of a new employer. While historically non-solicitation covenants have been a good option for Georgia employers, the new law permits non-solicitation covenants to be more broad, and more enforceable, than ever.
- “Blue penciling” is now permitted, but is not mandatory. Perhaps the most significant reversal from current law is that a court may now salvage an otherwise unenforceable covenant by modifying, or “blue penciling,” the invalid portions and enforcing the remainder. This provision, however, is not mandatory — a court is not required to modify a covenant that is unreasonably overbroad, or if it appears that the employer was overreaching. At this point, it is difficult to predict how often and under what circumstances Georgia courts will employ or reject the new “blue pencil” option. Accordingly, even though the new law will allow more aggressive covenants, it is still important to draft reasonable covenants within the boundaries of the new law.
- Your company’s “confidential information” can now be protected indefinitely, as long as it qualifies as “confidential information.” For years, Georgia law has permitted employers to protect “confidential information” (i.e., proprietary information falling short of formal “trade secret” status) for only a limited period of time – usually about two years after separation from employment. Now, employers can protect their “confidential information” and “trade secrets” for as long as the information remains sensitive and confidential.
Georgia’s new covenant law is complex and, because it is brand new, untested in the courts. These headlines offer a summary of certain key aspects of the anticipated new law. Please understand, however, that these headlines are merely summaries. Restrictions and qualifications abound, so consult your attorney before undertaking to revise or draft contracts under the new law.
If you have any questions about this Employment Law Headline, or about any legal matter relating to your company’s workplace, please contact any member of our firm.