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New Limitations to Application of Georgia Restrictive Covenants Act

Posted on: May 23rd, 2013

By: Joyce Mocek

Recently, a Fulton County Superior Court judge, in an unpublished order in the case of Cone v. Marietta Recycling Corporation, limited the application of the Georgia Restrictive Covenants Act, and provided guidance on whether a company could enforce a non-compete covenant against a former employee.

The Georgia Restrictive Covenants Act, which became effective on May 11, 2011 when signed by Georgia Governor Nathan Deal, established significant new guidelines concerning non-compete and non-solicitation agreements.  Since the enactment of the Georgia Restrictive Covenants Act, many employers have taken steps to require employees to sign new covenants so that they can benefit from the Act.

In Cone, an employee signed an employment agreement that contained a restrictive covenant on February 25, 2011, before the new law went into effect.  The employee was later fired, and subsequently signed a separation agreement on May 4, 2012.  The separation agreement provided that it “superseded” and “rendered null and void” all prior agreements, except the confidentiality provisions and restrictive covenants from the employment agreement, which “would remain in full force and effect.”   The employer argued that the covenants should be interpreted under the new law because the separation agreement, which post-dated the new law, was applicable by ratification and novation.   Judge Dempsey, Jr. disagreed, stating that the restrictive covenants were not ratified through the separation agreement, and there was no novation. He clarified that the only way the employer could have taken advantage of Georgia’s new law, was to require the employee to execute a new contract with new restrictive covenants having a new effective date after May 11, 2011, or by replacement of the old restrictive covenants with new ones.

Although this unpublished order is not binding on other courts, it provides useful insight into how other judges may determine whether the new law is applicable to a particular agreement, and what will be required to ensure the application of the new law.

 

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