New Laws Regarding Restrictive Covenants

Restrictive covenants, such as noncompete agreements, are contracts that restrict or prohibit an employee’s competition with an employer during or after the term of the agreement. They are aimed at protecting a company from unfair competition. Georgia courts only enforce restrictive covenants if a business proves the existence of a legitimate business interest justifying the restrictive covenant.

Before 2011, Georgia law generally disfavored restrictive covenants, and the constitution even prohibited the General Assembly from authorizing them. However, in 2010, Georgia’s citizens approved a constitutional amendment that would allow the legislature to enact laws authorizing restrictive covenants. On May 11, 2011, the Restrictive Covenants Act went into effect, making it easier to enforce restrictive covenants such as noncompete agreements.

The Act states “the enforcement of contracts that restrict competition during the term of a restrictive covenant, so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities, shall be permitted.” The law requires that the agreement’s “description of activities, products, or services, or geographic areas” must provide “fair notice of the maximum reasonable scope of the restraint.” In other words, the extent of restrictions must be clear to an employee before signing the agreement.

In Becham v. Crosslink, the 11^th Circuit made clear that restrictive covenants entered into before the effective date of the new Restrictive Covenants Act are subject to the more rigorous common law standard.  It is crucial for employers to be aware that older agreements will be subject to a different standard. In Becham, the Court held that the restrictive covenants at issue were unreasonable and void for the following reasons;

• Noncompete covenant contained a territorial limitation that could not be known until the employee’s termination
• Nonsolicitation-of-employees covenant lacked any territorial limitation
• Nondisclosure covenant did not contain a time limitation

Obviously, the laws governing restrictive covenants are complex. An experienced attorney can provide the legal guidance you need to navigate the changing landscape of restrictive covenants, whether you are an employer or employee.