Contracts Hb 30

• Jurisdiction: Georgia,United States
• Publication year: 2010
• Citation: Vol. 28 No. 1

Georgia State University Law Review

Volume 28 . .

Issue 1 Fall 2011 ³

2-1-2012

Contracts HB 30

Georgia State University Law Review

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Recommended Citation

Georgia State University Law Review (2011) "Contracts HB 30," Georgia State University Law Review: Vol. 28: Iss. 1, Article 3. Available at: http://digitalarchive.gsu.edu/gsulr/vol28/iss1/3

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CONTRACTS

Illegal and Void Contracts Generally: Amend Chapter 8 of Title 13 of the Official Code of Georgia Annotated, Relating to Illegal or

Void Contracts Generally, so as to Repeal Section 2 Part 1 of Chapter 8 of Title 13 of the Official Code of Georgia Annotated, Relating to Contracts in Partial Restraint of Trade; Change Provisions Relating to Contracts Contravening Public Policy; Repeal Article 4 of Chapter 8 of Title 13, Relating to Restrictive Covenants in Contracts; Provide a Statement of Legislative Findings; Define Certain Terms; Provide for Applicability; Provide for the Enforcement of Contracts that Restrict or Prohibit Competition in Certain Commercial Agreements; Provide for the Judicial Enforcement of Such Provisions; Provide for the Modification of Such Provisions; Provide for Rebuttable Presumptions; Provide for Enforcement by Third-Parties; Provide

for Construction; Provide for Related Matters; Provide for an Effective Date and Applicability; Repeal Conflicting Laws, and for

Other Purposes.

Code Sections: O.C.G.A. §§ 13-8-2.1 (amended), -50,

-51, -52, -53, -54, -55, -56, -57, -58, -59 (new)

Bill Number: Act Number: Georgia Laws: Summary:

HB 30 99

2011 Ga. Laws 399

The Act primarily focuses on restrictive covenants in employer-employee relationships, specifically defining and codifying reasonable restraints on trade. The Act is in response to a constitutional amendment ratified by the voters on November 2, 2010, which was said to have left uncertainty in the realm of restrictive covenant agreements. This Act intends

22 GEORGIA STATE UNIVERSITY LAW REVIEW [Vol. 28:1

to remove any such uncertainty by reenacting the substantive provisions from the 2010 constitutional amendment and also by enacting new Code sections. The Act provides that any contract against the public policy of law cannot be enforced. Overall, the Act states that reasonable restrictive covenants in employment contracts are valid and enforceable. The Act repeals existing Code sections and replaces those sections with new Code sections that give directives to the court that lean towards upholding restrictive covenants.

Effective Date : May 11, 2011

History

Until recently, non-compete covenants in Georgia employment contracts had to be written according to specific rules set out by the judiciary that, if not followed precisely, would cause the non-compete covenants to be unenforceable.¹ In 2009, House Bill (HB) 173² was introduced and enacted to provide legislative guidance for employers drafting employment contracts that contained restrictive covenants.³ However, such a statute would only be valid if changes were made to the Georgia Constitution to allow the General Assembly the power to authorize contracts that restrict competition.⁴ In 2010, Georgia voters passed a constitutional amendment to allow the State to legislate employment contracts that contain restrictive

1. McKenna Long & Aldridge, LLP, Georgia Legislature Attempts to Clear Up Uncertain Validity of New Noncompete Law, Feb. 16, 2011, http://www.mckennalong.com/news-advisories-2453.html (last visited June 3, 2011) [hereinafter McKenna Article].

2. HB 173 passed. Act No. 64, 2009 Ga. Laws 231. HR 178 was the proposed constitutional amendment, which passed the General Assembly in 2010 and was a ballot measure during the November 2010 general election. 2010 Ga. Laws 1260. It was necessary for this constitutional amendment to be adopted by the voters for the Act (HB 173) to be effective.

3. McKenna Article, supra note 1.

4. Compare Ga. Const. art. III, § 6, para. 5 (as it read in 2010) with Ga. Const. art. III, § 6, para. 5 (as amended effective Jan. 2011).

covenants, meaning the Georgia Code now sets forth the specifics for drafting and upholding non-compete clauses.⁵ Voters ratified this constitutional amendment on November 2, 2010,⁶ but the constitutional amendment was not effective until January 1, 2011.⁷ Uncertainty ensued, however, because HB 173 stated that statutory changes would go into effect the day after ratification of the constitutional amendment—November 3, 2010—while the actual constitutional amendment did not go into effect until January 1, 2011.⁸

This uncertainty led to the introduction of HB.⁹ Overall, HB 30 started out as a replica of the bill that had previously passed, with the only noticeable difference being that this new law would be effective when approved by the Governor.¹⁰ But public concern quickly grew over this alleged "replica" when constituents realized the new bill had provisions that would seriously impact their ability to obtain new employment in a declining economic climate.¹¹ HB 30 not only fills the gap in terms of when the new law is effective, but also adds provisions to the current Code section that will now require employers to do things such as list specific competitors that employees are precluded from working for instead of simply specifying a general geographical restriction.¹²

5. See generally O.C.G.A. § 13-8-56(1) (2010).

6. See HB 30, as introduced, 2011 Ga. Gen. Assem.

7. See McKenna Article, supra note 1.

8. Neal Weinrich, Legislation Introduced Which Would Re-enact Georgia's New Restrictive Covenants Legislation, Georgia Non-Compete & Trade Secret News, Jan. 28, 2011, http://www.georgia-noncompete.com/2011/01/legislation-introduced-which-would-re-enact-georgia%E2%80%99s-new-restrictive-covenants-legislation/.

9. See O.C.G.A. § 13-8-56(1) (2010).

10. See McKenna Article, supra note 1.

11. Video Recording of House Proceedings, Feb. 22, 2011 at 1 hr., 32 min., 56 sec. (remarks by Rep. Brian Thomas (D-100th)), http://www.gpb.org/lawmakers/2011/day-17 [hereinafter House Video].

12. Michael Elkon, Georgia House of Representatives Passes "Fix" to Restrictive Covenant Act, Trading Secrets, Feb. 25, 2011, http://www.tradesecretslaw.com/2011/02/.

24 GEORGIA STATE UNIVERSITY LAW REVIEW [Vol. 28:1

Bill Tracking of HB 30

Consideration and Passage by the House

Representative Wendell Willard (R-49th) sponsored HB 30.¹³ The House read the bill for the first time on January 24, 2011.¹⁴ The bill was read for the second time on January 25, 2011, and Speaker of the House David Ralston (R-7th) assigned the bill to the House Judiciary

Committee.¹⁵

The bill, as originally introduced, sought to "remove any . . . uncertainty" surrounding HB 173 that was enacted during the 2009 legislative session.¹⁶ Specifically, the bill stated that HB 30 "shall become effective upon its approval by the Governor."¹⁷ This provision was added because the validity of the 2010 Restrictive Covenants Act was at question due to it becoming effective prior to the effective date of the constitutional amendment.¹⁸ The House Judiciary Committee offered a substitute to the bill, which made an additional revision to Code section 13-8-56.¹⁹ This revision addressed what constitutes a reasonable time period that a restrictive covenant could limit or restrict an employee from seeking employment with a competitor. As originally introduced, the bill allowed for "a time period equal to or measured by [the] duration of the parties' business or commercial relationship."²⁰ The substitute instead provided that "during the term of the [employment] relationship, a time period equal to or measured by [the] duration of the parties' business or commercial relationship is reasonable, provided that the reasonableness of the time period after a term of employment shall be as provided for in Code section 13-8-57."²¹ The House Judiciary Committee favorably reported on the substitute on February 15, 2011 and the bill was read for a third time in the House

13. House Video, supra note 11, at 1 hr., 23 min., 55 sec. (remarks by Rep. Wendell Willard (R-49th)).

14. State of Georgia Final Composite Status Sheet, HB 30, May 24, 2011.

15. Id.

16. HB 30, as introduced, § 1, p. 1, ln. 22-24, 2011 Ga. Gen. Assem.

17. ...