On May 11, 2011, Governor Deal signed House Bill 30, Georgia’s Restrictive Covenant Act.  For those that have been following this issue, you understand “what a long strange trip it’s been.”  If you are late to the game, please see prior posts to get up to speed. 

The upshot of the signing of the legislation by Governor Deal is this – a new day has dawned in Georgia for restrictive covenants signed on or after May 11, 2011.  The new legislation has no impact on non-competes and other restrictive covenants signed before May 11, 2011 (with a caveat – there is an argument that the first go around at the legislation would cover agreements signed on or after January 1, 2011, but that very debatable issue is also explained in prior posts). 

So it is now time for businesses with employees in Georgia to dust off their restrictive covenant agreements.  Georgia law does not require “additional consideration” to support a new agreement signed by a current employee.  So if there is any question as to whether an agreement signed by a current employee is valid or whether it really provides you with the protection you need, now is the time to solidify the situation with a new agreement.  But when drafting new agreements, businesses should be careful about getting too greedy.  The law does not require judges to modify overbroad covenants; rather, any needed modification is left to the discretion of the judges.

The enactment of Georgia’s Restrictive Covenant Act is inching closer to a reality.  As many have widely observed, the statutory framework that everyone thought was going to be effective after the election in November of 2010 has been clouded with uncertainty because of an effective date issue.  In an attempt to “remove any such uncertainty,” House Bill 30 was introduced in January of 2011 with the goal of eliminating a constitutional challenge and making the Restrictive Covenant Act effective upon the signature of the Governor.

House Bill 30 cleared its first hurdle on February 22, 2011, receiving approval from Georgia’s House of Representative.  It then moved to the Senate where it took almost two months to come to a vote.  As the legislative session was nearing its close, the Senate passed House Bill 30 on April 12, 2011, but only after inserting an unrelated amendment.  Late in the evening on April 14, 2011 – the last night of the session – the House rejected the amendment, sending it again back to the Senate.  At 11:21 p.m. that night, the Senate “receded” the amendment.  That means that House Bill 30 as originally passed by the House in February had been approved with only minutes to spare.

On April 21, 2011, House Bill 30 was sent to Georgia’s Governor, Nathan Deal, to either sign the bill or veto it.  Governor Deal has 40 days in which to do so.  Stay tuned for the final chapter hopefully to come soon.

As we have written previously, the enactment of Georgia’s Restrictive Covenant Act has been stained with uncertainty as to its effective date.  While Georgia voters overwhelmingly passed a constitutional amendment in November of 2010 which was intended to pave the way for the Act to become effective the day after the election, glitches in the framework of the amendment caused doubt to set in as to whether the Act would be effective on January 1, 2011 – or ever. 

House Bill 30 was introduced at the beginning of the legislative session in January 2011 with the goal of eliminating a constitutional challenge and making the Restrictive Covenant Act effective upon the signature of the Governor.   Last Tuesday, February 22, 2011, House Bill 30 cleared its first hurdle, receiving approval from Georgia’s House of Representatives by a vote of 104 to 58.  While some opponents took the opportunity to criticize the Act as a whole, the dissent was not enough.  House Bill 30 (which is available in pdf format below) now moves to Georgia’s Senate.  Assuming it is approved there, the Bill will go before Governor Deal for a vote.  It is presumed that the path is clear for approval at the next two stages as well, but the timing of how quickly it will move is uncertain.  Stay tuned.

HB30.pdf (38.91 kb)

As discussed in an earlier post, the effective date of Georgia’s recently enacted non-compete legislation is in doubt.  Some believe that it was not and never can be effective.  Others believe that it was effective as of January 1, 2011, and that it would survive constitutional challenges. 

In an article published in The Atlanta Journal-Constitution on November 19, 2010, House Judiciary Committee Chairman Wendell Willard, R-Sandy Springs, indicated that the legislature would move quickly to fix the potential problem when the session opened on January 10, 2011.  In fact, House Bill 30 has been “prefiled” and is presumably ready to be that fix.  HB 30 explicitly states that its enactment should not be taken as evidence that the previous statute (HP 173) was in fact invalid.  Here is the introductory language of HB 30 in its entirety which explains why it was arguably necessary:

During the 2009 legislative session the General Assembly enacted HB 173 (Act No. 64, Ga. L. 2009, p. 231), which was a bill that dealt with the issue of restrictive covenants in contracts and which was contingently effective on the passage of a constitutional amendment. During the 2010 legislative session the General Assembly enacted HR 178 (Ga. L. 2010, p. 1260), the constitutional amendment necessary for the statutory language of HB 173 (Act No. 64, Ga. L. 2009, p. 231), and the voters ratified the constitutional amendment on November 2, 2010. It has been suggested by certain parties that because of the effective date provisions of HB 173 (Act No. 64, Ga. L. 2009, p. 231), there may be some question about the validity of that legislation. It is the intention of this Act to remove any such uncertainty by substantially reenacting the substantive provisions of HB 173 (Act No. 64, Ga. L. 2009, p. 231), but the enactment of this Act should not be taken as evidence of a legislative determination that HB 173 (Act No. 64, Ga. L. 2009, p. 231) was in fact invalid.

Notably, the effective date of HB 30 would not be retroactive to the day after the election or January 1, 2011.  Rather, it would be effective when the Governor signs it.

The conservative approach is not to count on the previous statute (HB 173).  While HB 173 may ultimately survive an attack, HB 30 will hopefully work itself through the legislature quickly and we will have more certainty.  Here’s to hoping that things clear up to some extent by the end of February, 2011.

As noted in an earlier post, in the election on November 2, 2010, Georgia voters overwhelmingly passed a constitutional amendment authorizing a new statutory framework for enforcement of restrictive covenants.  But a question has quickly emerged as to when the new law is effective.

On the surface, the answer to that question seems easy -- the new statute was effective for agreements entered into the day after the election (i.e., November 3, 2010) because the new statute has a provision that reads as follows:

"This Act shall become effective on the day following the ratification at the time of the 2010 general election...."

While this mandate is seemingly clear, it has not taken long for astute constitutional practitioners to find a problem.  The above quoted language is found in House Bill 173 (which contains all the new statutory framework).  However, there was another piece of legislation that accompanied HB 173.  This other piece was House Resolution 178, which contained the resolution proposing the amendment as well as the amendment itself.  It also includes the language of the question that was placed on the ballot.  Notably, HR 178 does not contain anything about an effective date.  (See HR 178 here).

Here is where it gets interesting.  According to Article X, Section 1, Paragraph 6 of the Georgia Constitution (entitled "Effective date of amendments or of a new Constitution"):, "Unless the amendment . . . itself or the resolution proposing the amendment . . . shall provide otherwise, an amendment to this Constitution . . . shall become effective on the first day of January following its ratification." (Emphasis Added).

Since neither the text of Amendment One, nor the resolution proposing it (HR 178) provided an effective date, it appears the Amendment only becomes effective January 1, 2011. If that rationale is correct, HB 173 cannot become effective until January 2nd – if it becomes effective at all.  Some are now questioning whether this glitch might call into question the entire constitutionality of the new statute.

So the plot thickens.  Stay tuned for further developments.  For now, the conservative move is to wait until January 2, 2011 before asking employees to sign new agreements. 

In a landslide victory with 68% of the votes, the constitutional amendment authorizing a new statutory framework for enforcement of restrictive covenants in Georgia was passed by Georgia voters on November 2, 2010.  The new framework goes into effect immediately, but it will only be applied to restrictive covenants that are signed today (November 3, 2010) or hereafter.

Is this a big deal or a radical change?  Absolutely.  Georgia law has long been known for its “unfriendliness” towards non-competes and other post-employment restrictive covenants.  However, the statutory framework which has now been endorsed via the constitutional amendment will allow Georgia courts/judges flexibility in enforcing non-compete and other restrictive covenant provisions in employment agreements whereas before they had no meaningful wiggle room.  The law also affects franchisor-franchisee, distributorship, lease, and partnership agreements.

But remember, the new law will only apply to agreements that are signed beginning November 3, 2010 and after.  If an agreement was signed prior to that time, it will be governed by the old case law.  Therefore, unless your agreements were tightly written to comply with the previous law, the constitutional amendment is of no impact for you … until and unless you get new/amended agreements signed by your workforce.

Although the changes that will result from the new law are many, the most significant change is that Georgia courts/judges will have the ability to modify what would be an otherwise overbroad provision.  Previously, Georgia judges did not have the discretion to modify, sever or blue pencil restrictive covenants in employment agreements (although there was a limited exception in the context of a sale of a business).

Click here if you are interested in reviewing the new statutory framework, or click on the pdf link below.

GA Noncompete law HB 173 full text.pdf (124.63 kb)