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Restricting Restrictive Covenants – What Executive Order 14036 means to Georgia employers

January 07, 2022

Drew Eckl & Farnham, LLP

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In 2011, Georgia legislature passed the Georgia Restrictive Covenants Act, OCGA Section 13-8-50 et seq., Which codified non-competition and non-solicitation rules for employees in key positions in Georgian companies. Enforcing restrictive agreements in Georgia before 2011 was incredibly difficult, as courts could completely overturn restrictive agreements if any aspect of the agreement was deemed too broad. The passage of the Georgia Restrictive Covenants Act changed that overnight, allowing the courts to “blue pencil” or rewrite the agreements, narrowing their scope and scope, making them enforceable.

As a result of the global COVID-19 pandemic, this summer the Biden administration signed the Executive Ordinance Promoting Competition in the American Economy, EO 14036. The executive order directs the Federal Trade Commission and other federal agencies to scrutinize restrictive measures covenants, including non-competition and non-solicitation bans, nationwide. While the initial response to the Executive Ordinance focused on banning non-compete clauses altogether, the Executive Ordinance only aims to “limit the unfair use of non-compete clauses and other clauses or agreements that may unfairly restrict worker mobility”. It appears that the use of the word “unfair” suggests that this government is trying to limit inappropriate non-compete agreements and restrictive agreements by letting the Federal Trade Commission take action against the abusive use of restrictive agreements, rather than directly prohibiting them.

In Georgia, a non-compete clause is enforceable if it meets certain criteria: (1) it must be supported by appropriate consideration; (2) it must show a legitimate business interest worthy of protection; (3) it must be of reasonable duration; (4) it must be reasonable within the scope of the prohibited activities; and (5) it must be reasonable in the geographic area that restricts the prohibited activities. And as a result of the Georgia Restrictive Covenants Act, any provision that does not meet the criteria listed above may be rewritten by a court to become enforceable.

In an arbitrary employment state like Georgia, continued offer of employment is considered fair consideration. Adequacy in terms of time and distance is presumed if the restriction agreement is less than 24 months and the employee has provided services to the employer within the geographic area. Legitimate business interests include protecting trade secrets, confidential information, essential relationships with existing customers or customers, specialized training, or goodwill. Neighboring states have different views on restrictive agreements, some of which prohibit the non-compete clause for hourly workers or invalidate them when an employee has been made redundant.

How does the Executive Ordinance Promoting Competition in the American Economy Affect employers in Georgia? The question arises as to whether the Federal Trade Commission or other agencies have the authority to make changes in this area, since restrictive agreements are state-specific laws. So far, no state has changed its restrictive covenants laws as a result of the signing of the Executive Ordinance. If the Federal Trade Commission decides to review non-compete agreements from state to state, it must publish notices of proposed rules, solicit comments, and enact the rules – a process that can take years.

The Federal Trade Commission has not indicated what level of regulation it will or may pursue, but employers should take the opportunity to reassess their current employment contracts with restrictive agreements to ensure they are complying with state laws and think about how to protect their business interests if the federal government would issue a ban or other restrictions. Drew Eckl & Farnham attorneys are ready to assist companies in developing alternative strategies, best practices and guidelines that will help employers retain their most important employees and protect their investments in their business.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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