In 2011, the Georgia legislature adopted the Georgia Restrictive Covenants Act, O.C.G.A. § 13-8-50 et seq., codifying non-compete and non-solicitation agreements for key employees of Georgia companies. Enforcing restrictive covenants in Georgia prior to 2011 was incredibly difficult, as courts were able to void restrictive covenants in their entirety if even one aspect of the agreement was deemed too broad. Enactment of the Georgia Restrictive Covenants Act changed that overnight, allowing the Courts to “blue pencil,” or rewrite, the covenants, narrowing their scope and reach and thus making them enforceable.
This summer, as a result of the COVID-19 global pandemic, the Biden Administration signed the Executive Order on Promoting Competition in the American Economy, E.O. 14036. The Executive Order instructs the Federal Trade Commission, among other federal agencies, to highly scrutinize restrictive covenants, including non-compete and non-solicitation agreements, nationwide. While initial reaction to the Executive Order focused on it purportedly banning non-compete agreements altogether, the Executive Order only seeks to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” It would appear that the use of the word “unfair” indicates that this Administration is seeking to limit unreasonable non-compete clauses and restrictive covenants, having the Federal Trade Commission act against abusive uses of restrictive covenants rather than banning them outright.
In Georgia, a non-compete agreement is enforceable if it meets certain criteria: (1) it must be supported by adequate consideration; (2) it must identify a legitimate business interest worthy of protection; (3) it must be of reasonable duration; (4) it must be reasonable in the scope of the prohibited activities; and (5) it must be reasonable in the geographic area limiting the prohibited activities. And as a result of the Georgia Restrictive Covenants Act, any provision that does not meet the criteria listed above can be rewritten by a court to become enforceable.
In an at-will employment state such as Georgia, a continued offer of employment is considered to be adequate consideration. Reasonableness is presumed in terms of time and geographic distance if the restrictive covenant is for less than 24 months, and within the geographic area the employee has provided services to the employer. Legitimate business interests include the protection of trade secrets, confidential information, substantial relationships with existing customers, or clients, specialized training, or good will. Neighboring states have different views on restrictive covenants, some prohibiting non-competes for hourly workers, or invalidating them if an employee has been laid off.
So how does the Executive Order on Promoting Competition in the American Economy affect Georgia employers? There are questions as to whether the Federal Trade Commission, or other agencies, have the power to effect any changes in this area, as restrictive covenants are state-specific laws. So far, no state has changed its restrictive covenants laws as a result of the signing of the Executive Order. If the Federal Trade Commission chooses to scrutinize non-compete agreements, on a state by state basis, it will require publishing notices of proposed rules, seeking commentary, and enacting the rules – a process that could be years in the making.
The Federal Trade Commission has not indicated what level of regulation it will or may pursue, but employers should take the opportunity to reevaluate their current employment agreements containing restrictive covenants to ensure they are in compliance with state law, as well as begin thinking about how to protect business interests if a ban or other limitations were to be enacted by the federal government. The attorneys at Drew Eckl & Farnham are prepared to assist companies in developing alternative strategies, best practices and policies that will help employers retain their key employees and protect their investments in their businesses.