As previously reported in a legal alert issued by Jackson Lewis on May 12, 2011, Georgia Governor Nathan Deal signed the Georgia Restrictive Covenants Act into law almost two years ago, on May 11, 2011.  Since that time, many employers have required employees to sign new covenants that comply with the law.

The Georgia Restrictive Covenants Act, O.C.G.A. § 13-8-50 et seq., drastically overhauled Georgia law in this area and set forth clear boundaries on who can and cannot be required to sign a non-compete or non-solicitation agreement, what length of time is considered to be reasonable restriction, and other requirements for an enforceable non-compete.

There have been only a few cases so far interpreting the new law.

In PointeNorth Insurance Group v. Zander, 2011 U.S. Dist. LEXIS 113413 (N.D. Ga. Sept. 30, 2011), Judge Richard Story was asked to enforce a non-solicitation covenant that purported to prohibit a former employee, Zander, from soliciting or accepting business from clients. Such a covenant would have been completely unenforceable under Georgia’s old non-compete law. Under the new law, however, Judge Story enjoined Zander from soliciting any of PointeNorth’s customers with whom she had contact during her employment.

Next, in Becham v. Sythes USA, 482 Fed. Appx. 387 (11th Cir. June 4, 2012), the Eleventh Circuit Court of Appeals cleared up some confusion and held that the first version of Georgia’s new non-compete law, which was passed in 2009 and ratified by voters in 201o during the general election, was unconstitutional. As a result, the second version of the law, which went into effect on May 11, 2011, is controlling.  Only restrictive covenants signed on or after that date are governed by the new law.

Finally,  in Cone v. Marietta Recycling Corporation (Fulton County Superior Court, Civil Action No. 2012-CV-223811, March 26, 2013), a former employee had signed certain restrictive covenants before Georgia’s new law went into effect, which would mean the old law applied. The former employee, however, also signed a severance agreement after the new law became effective. The severance agreement stated that it superseded all prior agreements, except for the restrictive covenants which would remain in effect.  The former employer argued that this language in the severance agreement brought the covenants under the new law.  In a March 26, 2013 Order, Judge Alford Demsey disagreed. He held, “there is only one way [Marietta Recycling] could have taken advantage of the May 11, 2011 change in Georgia’s law to secure enforceable restrictive covenants against Cone [the former employee] – requiring Cone to execute on or after May 11, 2011, a new contract with new restrictive covenants having a new effective date.” As a result, the old law applied.

Cone is an unpublished decision from one state trial court judge and, as such, is not binding on any other courts. It remains to be seen whether other judges will adopt the same reasoning.  In the meantime, Cone reminds employers that they should be careful to thoughtfully address this issue when they draft severance agreements for employees who signed restrictive covenant agreements before May 11, 2011.

There are many more questions about the new law that remain to be answered by the courts. For example, what type of blue-penciling of covenants is permitted? Will employee non-solicitation covenants be governed by the new law or the old common law? We will continue to monitor the case law and provide timely updates on our blog.