Executive Pay and Loyalty

U.S. - Georgia

2012.June.4 11th Circuit hold Georgia's New Non-competition Law Effective May 11, 2011.
In Becham v. Synthes (2012 WL 1994604)the 11th Circuit held that Georgia's Restrictive Covenant Law became effective May 11, 2011 – not November 3, 2010 when it was originally passed - because:

"By its terms, HB 173 became effective on, and applies to all contracts entered on or after, “the day following the ratification at the time of the 2010 general election of an amendment to the Constitution of Georgia .” 2009–1 Ga.Code Ann. Adv. Legis. Serv. 162 (LexisNexis). That day was November 3, 2010. Because Becham promised to abide by the Restrictive Covenants on December 1, 2010, HB 173 applies to these agreements. 
It is clear that the Restrictive Covenants would be at least partially enforceable under HB 173.FN3 Becham does not argue to the contrary. Instead, he contends that HB 173 is unconstitutional and void. We agree."

2011.May.11  Georgia's governor has signed legislation (House Bill 30, aka H.B. 30) that clarifies the effective date of Georgia’s statute addressing the enforceability of restrictive covenants in employment agreements and other circumstances. The new law makes the following types of changes:
  • Allows courts to enforce reasonable portions of restrictive covenants, thereby enforcing them even if other portions of the covenant were unenforceable.
  • Defines key terms such as "confidential information," "legitimate business interest" and "material contact".
  • Creates a presumption of reasonableness for non-compete restrictions of up to two years following the termination of employment, and eliminates time restrictions relating to protections for confidentiality and trade secrets;
  • Permits non-solicitation restrictions without geographic restriction, and generally assumes they apply to all customers with whom the exiting employee had "material contact" while employed.

2011.Jan.24 Summary of Georgia Noncompetition Laws Pre-2011 Constitutional Amendment.  The following items (a) to (e) are quoted directly from Cox v Altus Healthcare, GA Court of Appeals (2011.Jan.24):

(a) We reject Altus's argument that the agreement could be blue-penciled as ancillary to the sale of Altus because Cox did not purchase the company. See Osta v. Moran, 208 Ga.App. 544, 545(1) (430 S.E.2d 837) (1993) (affirming trial court's refusal to blue-pencil a restrictive covenant where a sale was not consummated). Rather, and as Altus's own chief executive officer testified, the covenants were undertaken as a “condition of his employment.” As such, they are subject to strict scrutiny and will stand or fall based on the question of law whether all the restraints imposed were reasonable, appropriately limited, and enforceable. W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 465 (422 S.E.2d 529) (1992).

(b) The non-disclosure provisions in the form and the agreement are unenforceable on their face because they are not limited in time. Allen v. Hub Cap Heaven, 225 Ga.App. 533, 539 (484 S.E.2d 259) (1997).

(c) The non-solicitation provisions in the agreement are unenforceable on their face because (i) they contain no time limitation and (ii) they contain neither a limitation to those personnel with whom Cox had a business relationship during the term of the agreement nor a geographical limitation. Johnstone v. Tom's Amusement Co., 228 Ga.App. 296 (491 S.E.2d 394) (1997) (non-solicitation clause without time limitation was unenforceable); Trujillo v. Great Southern Equip. Sales, 289 Ga.App. 474, 476 (657 S.E.2d 581) (2008) (non-solicitation clause containing neither a personnel limitation nor a geographic limitation was unenforceable).

(d) The non-recruitment provision is likewise invalid on its face because it bars Cox from even unsolicited contact with Altus employees or affiliates. Covenants that restrict employees' activities “more ․ than is necessary for the protection of the employer will not withstand the reasonableness test so as to uphold the covenant.” American Gen. Life & c. Ins. Co. v. Fisher, 208 Ga.App. 282, 284 (430 S.E.2d 166) (1993) (covenant preventing employer from accepting unsolicited insurance applications was unreasonable and thus unenforceable).

(e) “Georgia law is clear” that if one covenant in an agreement subject to strict scrutiny is unenforceable, “then they are all unenforceable.” Advance Tech. Consultants v. RoadTrac, 250 Ga.App. 317, 320(2) (551 S.E.2d 735) (2001).
2010.Nov.3 Georgia passes new non-competition law -- making enforcement more predictable.
Effective Date: The above-quoted Altus decision holds that Georgia courts will apply pre-existing case law to determine the enforceability of restrictive covenants entered into prior to ratification of the recent amendment to the Georgia Constitution: 
“Now effective as a result of the ratification of an amendment to the Constitution of Georgia in the general election of November 2, 2010, O.C.G.A. § 13-8-2.1(a) authorizes covenants ‘that restrain in a reasonable manner.’  (cit. omitted).  However, Ga. L. 2009, p. 231, § 4 provides that the new version of the statute ‘shall not apply in actions determining the enforceability of restrictive covenants entered into before’ the ratification.  We therefore apply the law of restrictive covenants as it existed before that event.”