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Just when it seemed safe for companies with employees in Georgia
to try to enforce their restrictive covenant agreements, the
Eleventh Circuit has brought back to life – if only for
one last hurrah – the old Georgia law that made
non-competition and other restrictive covenant agreements virtually
impossible to enforce. The Court did so in Becham, et al.
v. Synthes USA, et al., No. 11-14495, 2012 U.S. App. LEXIS
11225 (11th Cir. June 4, 2012), by holding that Georgia's first
attempt to re-write the State's non-competition law was
unconstitutional and that the second attempt did not apply to the
agreement at issue.
The backdrop, well known to those who practice in Georgia, is a
frustrating one for employers who have attempted to enforce
restrictive covenant agreements. For years, Georgia statutory
and constitutional law disfavored non-competition and other
restrictive covenants and, through a very narrow view of what is
reasonable and a refusal to reform overly broad agreements, made
them nearly impossible to enforce. This changed beginning in
2009 when the Georgia legislature approved a law allowing the
enforcement of previously unenforceable covenants, by,among other
things, creating presumptively reasonable time periods for
restrictions, removing the requirement of an expiration date for
certain confidentiality covenants, and, perhaps most importantly,
giving Georgia courts the ability to reform overly broad
agreements. The law was subject to a constitutional amendment
permitting the change, which occurred on November 2, 2010 through
Georgia's citizens' ratification of the amendment.
The confusion then began. The new law went into effect on
November 3, 2010, the day after the constitutional amendment was
ratified. The constitutional amendment, however, did not take
effect until January 1, 2011. Fortunately, the Georgia
General Assembly recognized the gap and passed a second law that
repealed the first law and authorized a second, virtually identical
law effective May 11, 2011. Problem solved, right?
Not so fast. Unfortunately for Synthes, the restrictive
covenants at issue were reaffirmed on December 1, 2010, after the
effective date of the first law, but before the effective date of
the second law. The Eleventh Circuit thus focused on the
first law and held that, because the law was implemented before the
constitutional amendment went into effect, it "was
unconstitutional and void the moment it went into
effect." The Court then went back to "old"
Georgia law, and like so many agreements before it, found Mr.
Becham's restrictive covenant agreement unenforceable.
Although the result was an unfortunate one for Synthes, the
impact can be managed going forward by making note of the critical
May 11, 2011 date. Restrictive covenant agreements entered
into on or after May 11, 2011 will be subject to the second new
law, and hence subject to more favorable court review.
Agreements entered into prior to that date, even if after the
November 2, 2010 constitutional amendment, will be judged under
"old," pro-employee Georgia law. Employers of
Georgia employees will therefore want to make sure that their
restrictive covenant agreements are effective on or after May 11,
2011 and, where they are not, arrange for the execution of new
agreements.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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