Urgent: Update Your Non-Compete Agreements to Take Advantage of New Law

H&A Team

By Joe Nagel, Esq., LLM, CPA

Until now, there were no clear rules governing “non-competes” (a provision typically found in  employment agreements and similar contracts that restrict one parties ability to compete against the other) in Georgia except for a hodge podge of case law that made it extremely difficult for employers to rely on non-competes.  In December 2009 the Georgia Legislature passed HB 173 to govern enforcement of restrictive covenants in the commercial arena.    However, the Legislature conditioned HB 173’s effectiveness upon the public’s passage of a constitutional amendment.  That constitutional amendment passed on November 2, 2010.

The new law is not retroactive.  It will not apply to non-competes entered into before November 2, 2010.   So if employers want to take advantage of the new law, they should update their non-compete agreements and non-disclosure/confidentiality agreements now.

The new law offers many advantages for employers.

• The new law allows courts to adjust or “blue pencil” overly broad covenants to make them reasonable and enforceable.  Previously, a court didn’t have this discretion – if the covenant was overly broad for any reason, no matter how minor, the covenant was held to be totally unenforceable.

• The new law allows employers to identify specific competitors as prohibited employers during the period of the non-compete.

• The new law provides that post-employment restrictions are enforceable if they give “fair notice of the maximum reasonable scope of the restraint… event if the description is generalized or could possibly be stated more narrowly to exclude extraneous matters”.  The statute also specifically provides a good faith safe harbor for “any good faith estimate of the activities, products and services or geographical areas that may be applicable at the time of termination”.  So now the employer may make reasonable assumptions about the role and geographical area of the employee at the outset and the non-compete will not be struck down as overly broad if those assumptions turn out to be mistaken.

• The new law includes a provision stating that trade secrets and other confidential information are legitimate business interests which support non-compete covenants.

• The new law provides that a restrictive covenant during the term of employment will not be  unreasonable because it lacks any specific limitation upon scope of activity, duration, or geographical area as long as it promotes or protects the purpose or subject matter of the agreement or relationship or deters any potential conflict of interest.    Previously, that was not the case in Georgia  –  covenants during the term of employment were subject to strict scrutiny just like those applying after the term of employment.

• The new law does away with Georgia’s “all or nothing” approach.  Under the old rules, if one part of an employment agreement contained an unenforceable restrictive covenant, all other restrictive covenants in the agreement were unenforceable.  This is no longer the case.

• The new law allows confidential information to remain protected as long as it remains confidential.  Previously, Georgia was one of two states that required a non-disclosure agreement to have a time limit, except as relates to trade-secrets.   Under the new statute confidential information is not required to have an expiration date.

If you have any questions or would like to update your non-compete agreement, please contact Joe Nagel or Todd Sehhat at info@hoffmanestatelaw.com or (404) 255-7400.