We have been following the saga of Georgia noncompetition agreements for some time now. First, there was the controversy over the language of the constitutional amendment, which arguably made restrictive covenants sound like they are pro-competitive. Then, the voters approved the constitutional amendment that authorized the legislature to enact laws permitting restrictive covenants. Finally, a question ensued over whether the legislature jumped the gun in 2009 when it had enacted laws in anticipation of the constitutional amendment. Got all that?
The specific outstanding issue was precisely when restrictive covenants became legal in Georgia. Now, the U.S. Court of Appeals for the Eleventh Circuit has provided the definitive answer: May 11, 2011. The Court of Appeals in Becham v. Synthes reasoned that the 2009 law authorizing restrictive covenants, which by its terms went into effect one day after the voters approved the constitutional amendment--i.e., November 3, 2010, was "unconstitutional and void the moment it went into effect". Why? Because the constitutional amendment approved by the voters did not go into effect until January 1, 2011. As such, the Court concluded that restrictive covenants were not legal in Georgia until additional legislation implementing the constitutional amendment became law on May 11, 2011.
The lesson of this case is that restrictive covenants, precisely because they are restraints on trade, are always read narrowly. Such covenants must be reasonable in terms of the interests and territory protected, and in the duration of the covenants. Courts are loath to enforce overbroad, vague, and ambiguous covenants, and such covenants are unlikely to survive judicial scrutiny. Moreover, because the law of restrictive covenants varies from state-to-state, having an understanding of the law where you are operating is essential. As the Becham case demonstrates, courts will not always enforce a choice of law provision when it involves a restrictive covenant because courts consider interpretation of covenants essential to a fair and consistent application of public policy.