Restrictive Covenants Governed By “New” Law Are Interpreted Similarly To Restrictive Covenants Governed By “Old” Law

In 2011, Georgia adopted a set of laws governing post-employment restrictive covenants (covenants not to compete, not to solicit customers, not to poach co-workers, not to use or disclose confidential information belonging to the employer, etc.).  Prior to the adoption of these “new” laws, it was very difficult to draft post-employment restrictions that were enforceable under Georgia law.  The stated intent of this “new” set of laws was to make it easier for Georgia employers to enforce restrictions against departed employees.  As is explained below, the “new” laws may not have changed the rules for enforcement of restrictive covenants as much as had been expected.

After nine years, only a handful of appellate court decisions have interpreted the “new” laws, leaving unresolved a lot of questions about the scope and interpretation of the “new” laws. The most recent decision, Belt Power v. Reed (March 2020), resolves some of those questions.  In a move that may surprise some practitioners, Belt analyzes restrictive covenants very similarly to the way they were analyzed under the “old” law. 

Key takeaways from Belt include:

  • The “new” laws have a very broad application.  Any agreement governing the employer’s “interest in property, confidential information, customer good will, business relationships, employees, or any other economic advantages” from which the employee has benefited, is governed by the “new” laws.  This means that covenants containing language that bars competition, solicitation of customers, poaching of co-workers, or use or disclosure of the employer’s confidential information or documents, all fall within the coverage of the act, even if the covenants may be given different titles in the parties’ written agreement.  When in doubt, one should assume that the “new” laws apply to such a restriction.  This broad application was expected by many practitioners, and this law firm’s client guidance has relied on this interpretation since the “new” laws were enacted.
  • Georgia’s Superior Courts have broad discretion to decide whether and when to “blue pencil”, or edit, restrictions that are overbroad under the “new” law. 
  • Georgia’s “old” law barred trial courts from modifying overbroad restrictions.  Instead, an overbroad restriction was automatically considered to be unenforceable and would, in some situations, result in other restrictions in the written agreement also being unenforceable. 
    • The “new” laws state that a Superior Court “may” modify an overbroad, unenforceable restriction so as to render it enforceable. 
    • Many practitioners have wondered whether and in which circumstances a Superior Court judge might be willing to modify an overbroad, unenforceable restriction in order to enforce it under the “new” laws. 
    • Belt establishes that this permission to modify an overbroad restriction in order t enforce it is in the discretion of the Superior Court.  This abuse of discretion standard means that, as long as the Superior Court judge’s decision isn’t clearly unreasonable, the Superior Court judge will be permitted to decline to rewrite the restriction to render it enforceable.  The Superior Court judge may instead conclude that the restriction is overbroad and refuse to enforce it.
    • Although the Superior Court could exercise its discretion to revise the restriction to render it enforceable, it seems likely that Superior courts will interpret Belt as giving them permission to decline to rewrite overbroad covenants in favor of simply finding that the covenants are overbroad and unenforceable as drafted.  
    • This interpretation makes it essential that attorneys who draft restrictive covenants be very thoughtful in their drafting.  Attorneys shouldn’t assume that the changes provided by the “new” laws will make it any easier to enforce post-employment restrictions than it was under the “old” laws.  And attorneys should never rely on a Superior Court judge to “fix” sloppy drafting.
  • Although the “new” law specifically permits parties to specify that a Georgia employee can be bound by the restrictive covenant laws of another state (such as the home state of the employer), Georgia has an exception to this rule where the other state’s laws depart from Georgia’s public policy.  Belt confirms that this means that, if the restrictive covenants in the agreement would not be enforceable under Georgia law, a Georgia court can determine that the application of the specified state’s law would depart from Georgia’s public policy – and then refuse to apply the other state’s law.

Belt reinforces just how important it is for employers and employees alike to engage an attorney who really understands restrictive covenants.  Ms. Myer has drafted and obtained court enforcement of restrictive covenants for 25 years, applying both the “new” laws and the “old” laws.  If you need legal advice regarding restrictive covenants in an employment agreement for a Georgia employee, please contact Ms. Myer.

This article is not intended to be comprehensive, but briefly summarizes a recent Georgia court decision governing restrictive covenants.  The analysis set forth in this article is provided for general understanding only and should not be considered legal advice.  Counsel should always be consulted for advice regarding a specific situation.

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