Restrictive Covenant Ruling

In one of the first appellate court cases to deal with Georgia’s new restrictive covenant law, the U.S. Eleventh Circuit Court of Appeals (whose jurisdiction includes Georgia) has held that law did not take effect until May 11, 2011.  As you may remember, that law was originally intended to take effect the day after the constitutional amendment allowing for its enactment was approved by Georgia voters in November 2010.  The Georgia legislature had originally enacted the law in 2009, but delayed its effective date until the day after the constitutional amendment was approved by the voters.  However, due to an oversight by the drafters of the legislation for the constitutional amendment, there was no effective date specified in the legislation for it, which meant that the amendment did not become effective until January 1, 2011.

Realizing their mistake, the Georgia legislature passed an almost identical statute in its 2011 session, which statute became effective on the date it was signed by the governor, which was May 11, 2011.  This left open the question of whether restrictive covenant agreements that were executed between January 1 and May 10, 2011 were to be governed by the new law or the previously existing law.

The Eleventh Circuit Court of Appeals has now answered that question and held that the previously existing law would apply to such agreements.  However, the opinion was unpublished, so it does not have any binding effect on the U.S. District Courts in Georgia and even if it had been published, the state courts of Georgia would not be bound by it.  Even so, any agency owners who had their employees sign new restrictive covenant agreements between January 1 and May 10, 2011 thinking they would be governed by the new law should give serious consideration to having new agreements signed, as you probably don’t want your agreement to be the test case for the Georgia Supreme Court on this issue.

Take Advantage of the new Restrictive Covenant Law

Most people have heard that a new law governing restrictive covenants in Georgia went into effect in 2011, but many employers have failed to take advantage of the benefits provided them under that law.  Perhaps the most far reaching change effected by the new law is the ability of a judge to rewrite a covenant that would otherwise be unenforceable to make it enforceable.  No longer do employers have to worry about making sure every word of their restrictive covenants complies exactly with the duties being performed by their employees.  The drafting and enforcement of true non-compete covenants is now also much easier.

But to take advantage of the new law’s benefits, a new restrictive covenant agreement must be entered into after the effective date of the law.  Such agreements that were entered into before that date are still subject to the sometimes nonsensical and draconian requirements of the old law.  Click here for an in depth article on the changes made by the new law.

All insurance agency owners who have not yet taken advantage of the new law’s benefits,  should seriously consider having their producers and all other employees who have contact with customers or access to confidential information sign new restrictive covenant agreements that incorporate the changes made by the new law.