On November 2, 2010, Georgia voters approved an amendment to the Constitution of Georgia authorizing new legislation that dramatically changes the State’s restrictive covenant law. As Georgia business owners are well aware, enforcement of restrictive covenant agreements against employees, franchisees, lessees, or independent contractors has been a moving target because of the Georgia appellate courts’ strict approach to such agreements. Despite business owners’ and their lawyers’ attempts to craft narrowly tailored, enforceable restrictive covenants, Georgia courts’ application of strict scrutiny to restrictive covenants often resulted in “gotcha” litigation aimed (often successfully) at unwinding otherwise valid agreements based on minor technicalities or new interpretations of the law. The new statute was drafted with the stated intention of providing guidance to parties entering into such agreements on or after November 3, 2010, and greater certainty as to their enforcement. Most notably, the legislature has reduced the level of scrutiny generally applied to restrictive covenants, authorized courts to “blue-pencil” overly broad covenants, and provided several presumptions to guide courts in their analysis of what time, territory, and activity restrictions are reasonable.
The following discusses the key provisions of the new statute and provides practical tips for Georgia businesses in light of the changes.
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