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It’s Official: Georgia Non-Compete Law is Changing, But The Question Is: When?

On November 2, 2010, Georgia residents voted to change the state’s constitution to allow the enforcement of reasonable non-compete agreements.  Until this point, Georgia has been one of the most hostile states for employers seeking to enforce such agreements.  This was due to a constitutional provision strongly disfavoring such agreements.  The recently ratified constitutional amendment replaces that provision and allows a non-compete-friendly bill, passed in 2009, to become effective.  One question that remains, however, is when can employers begin to take advantage of the new law?

The non-compete bill states, “This Act shall become effective on the day following the ratification at the time of the 2010 general election of an amendment to the Constitution of Georgia providing for the enforcement of covenants . . . .” This appears to say the bill should have become effective November 3rd since the amendment was ratified on November 2nd.

However, Article X, Section 1, Paragraph 6 of the Georgia Constitution (entitled “Effective date of amendments or of a new Constitution”) states, “Unless the amendment . . . itself or the resolution proposing the amendment . . . shall provide otherwise, an amendment to this Constitution . . . shall become effective on the first day of January following its ratification.”

Since neither the text of the amendment itself, nor the resolution proposing it provided an effective date, it appears the Amendment only becomes effective on January 1, 2011.  Therefore, it appears employers may have to wait until as late as January 2nd to benefit from the bill.

Based on this conflict, we reached out to the sponsoring legislator and spoke with counsel for the Legislature.  Unfortunately, this issue appears to have slipped through the cracks and is not addressed anywhere.

The significance of this conflict is the bill applies only “to contracts entered into on and after such date” (referring to the date the bill becomes effective).  Based on this analysis, the term “such date” appears to lead to three possible dates on which covenants begin to come under the new law:

  1. November 3, 2010 – This appears to be the date the legislature indended (“the day following ratification at the time of the 2010 general election”).  Although the Amendment appears to become effective January 1st, one argument is that once it does, it retroactively applies to covenants entered into as of November 3rd.  However, this is an aggressive interpretation because a contrary argument is that covenants entered into before the Amendment’s effective date remain subject to the current constitutional provision disfavoring noncompete agreements.
  2. January 1, 2011 – Even though this date does not follow the language of the bill (“day following ratification”), if this is the date the Amendment becomes effective, it would also be the first date the bill has constitutional authority following ratification.  This interpretation is still aggressive, but  a court may find it accomplishes the express intent of the legislature.
  3. January 2, 2011 – This is the most conservative interpretation.  While this date also does not appear to follow the language of the bill, a court might interpret “the day after ratification of an amendment . . . providing for the enforcement of covenants” to mean the day after such an amendment becomes effective.

Thus, there appears to be no question that the law applies to contracts entered into on or after  January 2nd, but can it be earlier?  Employers seeking non-compete agreements from Georgia employees between now and January 2nd  should consult labor and employment counsel regarding the best strategy for obtaining an enforceable covenant and/or to learn if any court has yet opined on this conundrum

Brody and Associates regularly provides counsel on employment agreements, covenants not-to-compete, and employment litigation in general.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.