Eleventh Circuit Confirms Georgia Legislature Wisely Did a “Do Over” on the New Non-Compete Statute

In golf, a hacker who slices his tee shot into the woods will often announce that he’s going to take a “mulligan”, i.e., hit another ball as if the first one never happened. Georgia’s General Assembly took a legislative mulligan in re-enacting its new non-compete statute, and a recent Eleventh Circuit opinion, Becham v. Synthes (U.S.A.), 2012 U.S. App. LEXIS 11225 (11th Cir. 2012), should make the folks under the Gold Dome glad they did.

In 2009, the Georgia General Assembly passed HB 173, which was a bill designed to make non-compete agreements and other post-employment restrictive covenants much easier for employers to enforce. The effectiveness of HB 173 was dependent upon a positive ratification by Georgia voters of a state constitutional amendment authorizing the new law. In November 2010, Georgia voters passed the amendment by a 2-1 margin. Because HB 173 specifically stated that it would become effective the day after ratification of the amendment, legislators, lawyers and employers all assumed that Georgia finally had its new employer-friendly non-compete statute in place as of November 3, 2010.

Shortly after the ratification of the amendment, however, some non-compete attorneys and commentators, including this author, began to have serious concerns about the effectiveness of the new law due to a discrepancy between the effective date of the new law, November 3, 2010, and the effective date of the constitutional amendment, which by law was January 1, 2011 (because the amendment, due to a legislative oversight, did not have a specified effective date).  The analysis was that because the new statute was not constitutionally authorized on the date it became effective, it was unconstitutional and could not be revived by the later effectiveness of the amendment. This author shared the concerns of practitioners with the sponsor of HB 173, Rep. Wendell Willard, and he eventually concluded that the statute needed to be re-passed in the next session in an abundance of caution. (Go here for a discussion between the author and Rep. Willard about the events leading up to re-passage of the bill).

Thus, in 2011, the General Assembly passed a new bill, HB 30 (codified at OCGA §13-8-50 et seq.), that was essentially identical to the 2009 bill. This new statute, however, by its terms only applied to agreements executed on or after the new effective date of May 11, 2011. This left some uncertainty about how Courts would treat non-compete agreements executed during the legislative twilight zone period between the effective dates of the first and second versions of the new non-compete statute. Would courts give any deference to employers who had their employees execute new non-competes in reliance upon the much ballyhooed passage of the new statute?

That question was answered in the negative by the Eleventh Circuit in the recent Becham opinion. In that case, an employer was attempting to enforce a non-compete agreement dated December 1, 2010, after the ratification of the constitutional amendment and the effective date of HB 173, but before the effective date of the corrective 2011 statute. In affirming the grant of summary judgment in favor of the employee-defendant, the Eleventh Circuit held that “HB 173 was unconstitutional and void the moment it went into effect”, thus confirming the analysis of the practitioners who first reached out to the bill sponsor. The effect of that ruling was that the Court applied the much more onerous pre-statute body of Georgia non-compete law, and the plaintiff’s non-compete covenants were held to be unenforceable

BURR POINT:  The Georgia lawmakers’ nimble legislative repair of its previous misstep on the timing of the new non-compete statute means that all’s well that ends well, unless you’re an employer caught in the gap of the effective dates of the two versions of the law.  For Georgia employers, it is now clear that your non-competes must be executed on or after May 11, 2011, in order to take advantage of the more lenient new statute. For more information or help further understanding the changes to Georgia’s non-compete laws, contact a member of Burr & Forman’s Non-Compete and Trade Secrets team.