Effective Date of Georgia Non-Compete Law Is Complicated

ATLANTA – To the delight of franchisors and employers, voters approved an amendment to the Georgia Constitution that makes it much easier to enforce non-competition in franchise and employment agreements. But according to  Gerald C. Wells of DLA Piper, putting the legislation in effect is complicated because of an “effective date” issue.

In the firm’s newsletter, Wells explains that although the legislation states that it becomes effective on the day following the ratification of the amendment in the November general election (November 3, 2010), there is uncertainty because the effective date was not included in the resolution that proposed the amendment or in the constitutional amendment itself. If an effective date is not provided the amendment becomes effective January 1 following its ratification.

Wells further explains, “This complication in the legislative process could delay or even prevent the legislation from going into effect.” He said lawmakers in Georgia are scrambling to fix this problem in the next legislative session that starts in January. He adds, “It is doubtful that there is enough opposition to block a legislative fix, but it is uncertain how long it will take. Additionally, there are some who contend the amendment could be unconstitutional because of the problem and that a legislative fix cannot cure this problem.”

Given Georgia’s history related to the enforcement of restrictive covenants, Georgians could see challenges to the constitutionality of the legislation and amendment after a legislative fix. But Wells said those challenges would not be seen for a while. His advice, “Companies with Georgia franchisees and employees should continue to monitor the effective date related to the legislation.”

Attorney Randy Edwards of Cochran & Edwards was dead set against the new legislation, which came into play following his court victory in AtlantaBread v. Lupton-Smith, 285 Ga. 587 (2009, pdf). Georgia’s Supreme Court reaffirmed that unreasonable restrictions are void and contrary to the public policy of the State. 

The International Franchise Association and other big business concerns didn’t waste any time promoting the new legislation to overturn the Atlanta Bread case. The IFA claimed multiple Georgia corporations had indicated to policymakers that in-state expansion plans are contingent on the current law being changed. 

Edwards emphatically states the facts disprove that. 

Now with new complications coming into play on the legislation’s effective date, Edwards said he isn’t surprised. “This is what happens when lawmakers are in hurry to ram something through at the last minute rather than having a meaningful debate.  Now that the amendment has passed, by dubious language I might add, they will certainly have the votes to pass a fix in the next session.  My only hope is that this time, they will have some meaningful debate on the language of the law.”

But Edwards adds, “I also hope to win the lottery this weekend.”  

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Related Articles:

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• Georgians Vote Not to Compete
• Vote No on Restricting Competition in GA