On November 2, 2010, Georgia voters approved an amendment to the Georgia Constitution that allowed a new statute governing the enforcement of post-employment restrictive covenants to go into effect today. The new statute provides much needed guidance on what is and is not enforceable and provides the courts more flexibility to enforce such covenants to the extent they are reasonable, even if they are overbroad or otherwise unenforceable as written.
Some of the most significant changes are:
A. Post-employment non-compete agreements are permitted only for employees who (1) customarily and regularly solicit customers or prospective customers, (2) customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others, (3) perform the duties of a “key employee” or of a “professional,” or (4) satisfy each of the following conditions: (a) have the primary duty of managing the business unit in which the employee is employed or of a department or subdivision of the business; (b) customarily and regularly direct the work of two or more employees; and (c) have the authority to hire or fire other employees or to give suggestions and recommendations as to the hiring or firing, promotion or other change of status of other employees. A “key employee” is an employee who because of the employer’s investment of time, training, money, trust, exposure to the public, or exposure to customers, vendors or other business relationships during the course of his employment, has gained a high level of notoriety, fame or reputation as the employer’s representative or spokesperson or has gained a high level of influence or credibility with the employer’s customers, vendors, or other business relationships or is intimately involved in the planning or direction of the business or a defined unit of the business. A key employee is also an employee who has specialized skills, knowledge or abilities or customer contacts or customer information because of his work for the employer.
B. A former employee may be prohibited from soliciting or attempting to solicit an employer’s customers or actively sought prospective customers with whom the employee had material contact during his employment for purposes of providing products or services that are competitive with those provided by the former employer. In this context, “material contact” means contact between an employee and a customer or prospective customer (1) with whom the employee dealt on behalf of the employer, (2) whose dealings with the employer were coordinated or supervised by the employee, (3) about whom the employee obtained confidential information in the ordinary course of business as a result of the employee’s work for the employer, or (4) who receives products or services from the employer, the sale of which resulted in compensation, commissions or earnings for the employee within two years before the date of the employee’s termination. This definition of “material contact” is a significant expansion of Georgia law.
C. Post-employment non-compete and non-solicitation agreements must have a reasonable time limit. The limit is presumed to be reasonable if it is two years or less and presumed unreasonable if it is more than two years. If, however, the covenant was signed as part of the sale of a business, the longer of (1) five years or (2) the period during which payments continue to be made to the seller as a part of the sale is presumed to be reasonable.
D. Agreements prohibiting the disclosure of confidential information that does not rise to the level of a trade secret under Georgia law are no longer required to have a time limit.
E. Under Georgia law, as it existed before November 3, 2010, any agreement prohibiting post-employment competition or solicitation of customers that was not enforceable as written was void and would render all other non-compete and non-solicitation provisions in the agreement (even if those provisions were enforceable as written) unenforceable. Under the new statute, if a court determines that restrictive covenant does not comply with the new rules, the court may modify the provision to make it reasonable and enforce the agreement as modified.
The new Georgia law applies only to agreements signed on or after November 3, 2010. As a result, any employer who has employees located in Georgia who (1) are key employees or professionals, (2) have substantial client contact, or (3) have access to trade secrets and confidential information should consider replacing covenants that are questionable under the old law (almost all are) with new covenants. King & Spalding’s Labor and Employment lawyers would welcome the opportunity to help you in this review process.