Georgia Non-Compete Law: A Look at Georgia’s (Complicated) History of Restrictive Covenants

The world of non-compete law in Georgia took a turn on May 11, 2011 when House Bill 30 was signed and effectuated O.C.G.A. § 13-8-50, et seq (the Georgia Restrictive Covenants Act). Although to date there is minimal case law interpreting the new law and how it impacts the enforceability of restrictive covenants, O.C.G.A. § 13-8-50 does provide us with some parameters to navigate our way through this new arena. This blog series is designed to provide the specifics of why legislatures found it important to make a change in the law , how Georgia non-compete law applies, and what it means in interpreting restrictive covenants today. Let’s first look at why legislatures changed the law.

Before the enactment of the Georgia Restrictive Covenants Act, Georgia law was void of a codified rule establishing guidelines for the enforceability of restrictive covenants in employment agreements. What this meant for both Georgia employers and employees is that they were subject to a myriad of what could be confusing, complicated, and sometimes conflicting case law to guide them in their quest for answers as to the enforceability of their restrictive covenants. Georgia lawmakers previously attempted to clarify the common law rules by enacting a statute, but in 1991 this effort was shot down by the Georgia Supreme Court as unconstitutional. Specifically, the Supreme Court found that the passing of a noncompetition statute violated Article III of the Georgia Constitution “inasmuch as it is one that authorizes contracts and agreements which may have the effect of or which are intended to have the effect of defeating or lessening competition or encouraging monopoly.” And with that ruling, Georgia non-compete law remained contingent upon the findings and rulings of the judiciary, otherwise known as Georgia common law.

In 2009, and in an effort to create some uniformity to the rules of enforceability for restrictive covenants, the Georgia legislature passed House Bill 173 which would create a new set of rules regarding the enforcement of restrictive covenants. Being ever mindful of the 1991 ruling, the legislature made the enforceability of House Bill 173 reliant upon an amendment to the Georgia Constitution itself that would make new laws, specifically House Bill 173, regarding restrictive covenants enforceable. As a result, on November 2, 2010, Georgia voters were presented with the question “Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?” And with the majority of voters voting “yes” for the constitutional amendment, the course was set for a change in the interpretation and enforcement of restrictive covenants in Georgia, and House Bill 173 was to go into effect “on the day following the ratification” of the constitutional amendment and would apply to restrictive agreements entered into on or after the law’s effective date.

Seem too “easy” to be true? It was. Although the Georgia legislature had been careful to make sure that the new law was constitutional, what they had overlooked was when exactly the new law would become effective. The language above regarding the effective date of the new law was vague at best. After all that trouble creating a less complicated, more uniform way of determining whether restrictive covenants were enforceable, we were left with the question of not only when does the new law apply but if the new law was even valid at all. The Georgia legislature looked to the default rule under the Georgia Constitution to provide us with an effective date. So, under Article X, Section 1, Paragraph 6 of the Georgia Constitution, the effective date for the new law was set for January 1, 2011…or so we thought.

Not quite content with the clarity of the effective date, Governor Nathan Deal signed House Bill 30, explaining that the new law only applied to restrictive covenants signed on or after May 11, 2011. Okay – that was great, but what about those restrictive covenants signed between November 3, 2010 and May 10, 2011? Would they be analyzed under House Bill 173 or the old common law?

The 11th Circuit in an unpublished opinion in Becham v. Synthes USA, No 11-14495, WL 1994604 (11 th Cir. June 4, 2012) shed yet another light on clarifying the effective date of the new law. Essentially, the Becham ruling held that only Georgia common law governs those contracts entered into before May 11, 2011.