Published in the Cherokee Tribune, November 27, 2010
BUSINESS OWNERS AND EMPLOYEES MUST CONSIDER THE RAMIFICATIONS OF NEWLY ENACTED HB 173
On November 2, 2010 a political sea change swept the nation as voters resoundingly rejected the brand of "hope and change" that had been previously marketed by their political representatives. While most election coverage focused on the Republican takeover of the U.S. House of Representatives and that party's dominance in Georgia's state elections, relatively little attention was paid to the revolutionary changes in the laws that govern non-compete, non-disclosure, and non-solicitation (collectively referred to as "restrictive covenants") provisions in Georgia employment contracts; however, a firm understanding of the new laws is critical for all Georgia business owners and employees.
In general terms, non-compete agreements operate to restrict an employee of one employer from working for a competing employer. Similarly, non-solicitation agreements prohibit an employee from soliciting customers of a former employer to do business with that employee's new employer, and non-disclosure agreements prohibit an employee from distributing its employer's confidential information to any third parties.
The enforcement of restrictive covenants creates a persistent tension between the needs of an employer to protect its business, including its client base, its trade secrets and confidential work product, and its investment in training its employees, with an employee's right to work where he or she chooses. Historically Georgia courts have been very hostile to restrictive covenants and thus it was very difficult for employer's to effectively enforce restrictive covenants against their employees; however, that landscape was fundamentally changed with the election on November 2nd.
Virtually overnight Georgia swung from being a state that was very hostile towards restrictive covenants, to having laws that will widely permit them. That notwithstanding, the new laws permitting restrictive covenants will only apply to contracts executed on or after November 3, 2010. All contracts executed prior to November 3rd will be governed and interpreted under the former – and much more employee-friendly – legal framework.
Business owners who wish to obligate their employees to abide by any form of restrictive covenants would be well advised to have their employees execute new employee contracts to take advantage of the changes in the law. Conversely, employees who are either subject to pre-November 3rd employment contracts, or who are not bound by any such contracts should give careful consideration before agreeing to enter into any post-November 3rd employment contracts.
It is important to highlight a few of the particular provisions of the new statutes. For instance, the term "employee" is defined only include employees who regularly solicit customers or engage in sales, are employed as managers, executives, or professionals, or who possess important confidential information or specialized skills or knowledge. Accordingly, employers are not permitted to enforce restrictive covenants against employees whose duties are primarily administrative, ministerial, or otherwise outside of the statute's definition.
Additionally, under the new law restrictive covenants are not limited to inclusion in employment contracts, and they may also be included in contracts with independent contractors, franchisees, lessees, and other types of agents or contracting parties.
David L. Walker, Jr., is a partner in the law firm of Flint, Connolly & Walker, LLP in Canton, Georgia, where he represents businesses and individuals in various legal matters.