On May 11, 2011, a new law in Georgia—the Georgia Restrictive Covenant Act (the “Act”)—took effect that will make it much easier for employers to draft enforceable restrictive covenants to protect confidential information and customer relationships. The Act had an unusual history. Although a version of the Act passed in late 2010, to take effect it required a voter-approved constitutional amendment. An inconsistency between the constitutional amendment and the statute threatened the statute’s enforceability. The new statute, essentially the same as the one passed in 2010, fixes the inconsistency and allows the new employer-friendly provisions to become law.
The Act was put into place to address Georgia courts’ long-held hostility to restrictive covenants in employment agreements. For example, Georgia courts refused to enforce restrictive covenants in employment contracts that lacked reasonable limitations as to duration, territory and scope. See, e.g., AGA, LLC v. Rubin, 533 S.E.2d 804, 805-6 (Ga. 2000). Georgia law also prohibited courts in most employment agreement cases from “blue-penciling”—the process of modifying overbroad restrictive covenants to make them enforceable. See, e.g., Hamrick v. Kelley, 392 S.E.2d 518, 519 (Ga. 1990). This meant that an otherwise valid customer non-solicitation provision could be invalidated if the agreement contained another overly broad provision. See Pregler v. C&Z, Inc., 575 S.E.2d 915, 917 (Ga. App. 2003).
The Act, found at O.C.G.A. Section 13-8-50, makes it much easier to draft and enforce restrictive covenants. The most significant changes are:
- “No express reference to geographic area or to the types of products or services considered to be competitive shall be required in order for the restraint to be enforceable.” O.C.G.A. §13-8-53(b);
- A “good faith estimate of the activities, products, and services, or geographic areas, that may be applicable at the time of termination” is acceptable. O.C.G.A. §13-8-53(c)(1);
- Restrictive covenants of two years or less sought to be enforced against a former employee and not associated with the sale or ownership of a business are presumed reasonable. O.C.G.A. §13-8-57;
- Restrictive covenants may be used to protect “legitimate business interests” including, without limitation, “trade secrets,” “valuable confidential information,” “substantial relationships with specific …customers,” and “customer … good will.” O.C.G.A. §13-8-51(9); and
- Georgia courts may blue pencil an otherwise overbroad restrictive covenant to render it reasonable, including removing any part of a restrictive covenant that would otherwise make the covenant unenforceable. O.C.G.A. §§13-8-51(11)-(12); 12-8-53(d), 13- 8-54(b). However, a court should try to “achieve the original intent of the contracting parties” and may not make any “covenant more restrictive with regard to the employee than as originally drafted by the parties.” O.C.G.A. §§12-8-53(d), 13-8-54(b).
The Act also relaxes requirements as to nondisclosure agreements. Specific time limits on nondisclosure covenants were previously required. See Pregler, 575 S.E.2d at 917. But employers can now protect confidential information as long as the information remains confidential. O.C.G.A. §13-8-53(e).
The Act does not apply to every employment agreement. For covenants that restrict competition after the term of employment, the Act’s reach is limited to agreements with (1) sales employees, (2) managers, (3) “key employee[s],” and (4) “professional[s].” See O.C.G.A. §13-8-53(a); see also O.C.G.A. §13-8-51(8) (defining a “key employee” as an employee that has high level of notoriety as the employer’s representative, that is intimately involved in the direction of the business of the employer, or that is “in possession of selective or specialized skills, learning, or abilities or customer contacts or customer information … by reason of having worked for the employer”); O.C.G.A. §13-8-51(14) (defining a “professional” as an employee “who has as a primary duty the performance of work requiring knowledge of an advanced type in a field of science or learning”). The inclusion of “sales employees” should adequately cover industries in which the purpose of such agreements is to protect the employer’s existing customer base.
The Act’s reach is somewhat broader as applied to nonsolicitation and non-disclosure agreements, but is still limited to employment agreements with (1) “executive employee[s],” such as officers or directors, (2) “research and development personnel,” (3) “persons[s] … in possession of selective or specialized skills, learning, or abilities,” and (4) “person[s] … in possession of … customer contacts, customer information, or confidential information.” O.C.G.A. §§13-8-51(5), 13-8-52(a)(1).
Because the Act applies only to agreements entered into on or after May 11, 2011, employers who wish to take advantage of the Act should consider entering into new agreements with incumbent employees. Georgia courts have generally considered continued employment to be sufficient consideration for a noncompetition agreement executed by an incumbent employee after the inception of employment. Breed v. Nat. Credit Assn., 88 S.E.2d 15, 17- 18 (Ga. 1955). But there is recent authority holding that an existing, written employment contract not terminable at the will of the employer may not be supplemented by a new, separate noncompetition/nonsolicitation agreement without some additional consideration beyond continued employment. See Glisson v. Global Sec. Services, LLC, 653 S.E.2d 85, 87 (Ga. App. 2007). Thus, if an employer prefers to introduce provisions that would take advantage of the new statutory provisions for non-at will employees, it would be advisable to support a new agreement with additional consideration.
In any case, Georgia employers should review all existing employment agreements and confidentiality agreements in place, as well as current forms to be signed by new employees, to bring them within the scope of the Act to the extent possible.