Georgians Vote to Allow Competitive Covenants

Sun, 21 Nov 2010 14:40:38 GMT

While what some commentators have called a "wave" washed over the national political scene on November 2nd, setting the stage for an interesting "lame duck" Congressional session and major changes in Washington come January 2011, it wasn't only national politics that were impacted by the recent election.

You probably have heard that Republican governors and legislators now control the levers of government from the Upper Midwest to the Atlantic Coast. But big things were afoot in the Deep South as well. On November 2, 2010, the voters in the State of Georgia voted to amend their Consttitution so as to generally allow the enforcement of non-compete or non-competition agreements. The amendment had very broad support, as Georgia's voters supported by a better than 2 to 1 margin. The vote represents a major victory for business interests and the International Franchise Association, which strongly supported the amendment.

Previous to the vote on November 2nd, Georgia was one of a handful of states along with California and Louisiana, among others, that offered extremely limited competitive protections to an employer or franchisor against the future actions of a departing employee or franchisee. Voters approved changes in Georgia's constitution which, along with new legislation, dramatically enhance those protections and bring Georgia law in line with most of the rest of the nation. Specifically, the changes in the law:

allow Georgia courts to partially enforce non-compete clauses that previously would have been considered to be overbroad in scope. In order to accomplish this, the law expressly authorizes "blue-penciling", where a judge is allowed to modify the duration of or territory covered by a non-compete clause;
permit the enforcement of non-compete clauses while an employee or franchisee is still contracted to his or her employer or franchisor;
create a legal presumption--a very high standard--that post-termination non-compete agreements with a duration of two years or less are reasonable;
where appropriate, authorize enforcement of post-termination restrictions that lack an express reference to a geographic area.

Importantly, the changes only apply to non-compete agreements entered into AFTER November 3, 2010. The prospective nature of the changes has implications for both franchisors and franchisees operating in Georgia. Franchisors will need to have their franchisees sign amendments to their franchise agreements that comply with Georgia's new law. Such amendments will need to comply, of course, with disclosure requirements and will likely require that some additional compensation be given to the franchisee--though, admittedly common in other states, that latter part is not clear under the Georgia law. Franchisees will want to carefully scrutinize any proposed amendments to their franchisee agreements. Given that franchisees usually sign long-term agreements, they likely cannot be forced to sign amendments without gaining some new compensation--perhaps a new territory or relief from some other requirement of the franchise agreement. Franchisors and franchisees should have any proposed changes in their agreements reviewed by legal counsel.

Georgians Vote to Allow Competitive Covenants (Updated)

Sun, 21 Nov 2010 14:40:38 GMT

allow Georgia courts to partially enforce non-compete clauses that previously would have been considered to be overbroad in scope. In order to accomplish this, the law expressly authorizes "blue-penciling", where a judge is allowed to modify the duration of or territory covered by a non-compete clause;
permit the enforcement of non-compete clauses while an employee or franchisee is still contracted to his or her employer or franchisor;
create a legal presumption--a very high standard--that post-termination non-compete agreements with a duration of two years or less are reasonable;
where appropriate, authorize enforcement of post-termination restrictions that lack an express reference to a geographic area.

UPDATE: Stay tuned. There is a new wrinkle in Georgia's efforts to allow the enforcement of non-compete agreements. The Atlanta Journal Constitution is reporting that the state law implementing the new constitutional amendment has an effective date, as noted above, of November 3, 2010. However, the constitutional amendment authorizing the law does not take effect until January 1, 2011. This creates a serious question whether the law is enforceable. Accordingly, no one should enter into any non-compete agreements in Georgia until this discrepancy is resolved. Fox Rothschild will continue to monitor this situation.

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Georgians Vote to Allow Competitive Covenants

Georgians Vote to Allow Competitive Covenants (Updated)