Vote No on Restricting Competition in GA

Last year franchisees in Georgia won an important victory of a well established rule that non-competition agreements must have reasonable limits on time, territory and scope of restricted activity.  AtlantaBread v. Lupton-Smith, 285 Ga. 587 (2009, pdf).

The case started when Atlanta Bread’s top franchisee opened a bar, which happened to serve coffee and bagels in the morning and quesadillas at lunch.  Atlanta Bread terminated all five of his franchises, including the two at the Atlanta airport. The trial court agreed that the in-term restriction, which had no territorial limit whatsoever, and an incredibly vague definition of restricted activity, was void and unenforceable, and could not be used as a basis for terminating the franchises. The International Franchise Association, which claims to be the “unified voice for both franchisors and franchisees” filed multiple briefs in the Appellate Courts seeking to overturn the trial court’s decision. The Supreme Court, citing cases going all the way back to 1898, reaffirmed that unreasonable restrictions are void and contrary to the public policy of Georgia.

The Georgia constitution already declares any contract that has the “effect of defeating or lessening competition” void.   Not to be deterred by the either the constitution or over 100 years of precedent applying it, the IFA and other big business interests are seeking to overturn the Atlanta Bread case by asking voters to approve an amendment to the constitution.  Their only hope, is to write the ballot in a way to deceive the voters.  The language reads "Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?”  Simply put, this language is a bald-faced lie.

The IFA claims “multiple Georgia corporations have indicated to policymakers that in-state expansion plans are contingent on the current law being changed.”  The facts disprove this. 

For years, Georgia has been one of the top destinations in the country for businesses.  Multiple articles in the Atlanta Business Chronicle since2009 tout both Georgia in general and Atlanta in particular as being among the top rated-destinations for businesses.  The 2009 Georgia Department of Economic Development annual report confirms that:

in the face of a global business climate in which companies had less access to credit than ever, Georgia’s solid portfolio of assets still attracted more projects than the previous year. Global giants like NCR, Newell Rubbermaid and First Data infused the state with new jobs and investment, as did a multitude of other entrepreneurial companies across the state.

So, it’s not like companies are leaving or avoiding Georgia.  To the contrary. 

A constitutional amendment is a drastic step, especially when Georgia courts enforce reasonable non-compete agreements every day.  A reasonable non-compete must be reasonably limited in time, territory and scope of restricted activity. Currently, the burden is on the employer or franchisor to draft a well-written, reasonable agreement.  The penalty for over-reaching, is that the entire covenant is void. 

The amendment will authorize enforcement of agreements that have historically been deemed unreasonable. How? By removing the incentive to draft narrowly tailored, reasonable agreements, and removing the penalty for over-reaching. Specifically, the amendment will force judges to become the very kind of activist judges that big businesses typically loathe, giving them free reign to re-write contractual terms regarding how, when and where people can work when they try to (or need to) change jobs.

Not only will this proposition decrease Georgia's small businesses, but it will decrease employment.  For employees, any law that makes it harder to change jobs reduces salaries. I played football before free-agency. Players love free-agency and owners hate it for the same reason: competition for talent increases salaries.  How many times has someone said to their boss “XYZ has offered me more money.  I will stay here if you give me a raise.”?  Without competition, you won’t get that offer.

If you want to give businesses and judges more power to tell you when and where you can work, and what your business can do, this is a good law.  But for franchisees and their families, this bill needs to be defeated.  Vote “NO” on Nov. 2.

About the author: Franchise litigator Randy Edwards of Atlanta-based law firm Cochran & Edwards, played football under the University of Alabama's legendary coach Paul “Bear” Bryant, and then later for the NFL's Seattle Seahawks franchise from 1984 to 1988. Having a Master’s in Finance and a Juris Doctorate from the University of Alabama, Edwards is licensed to practice law in Georgia and Alabama. He previously was a partner at Kilpatrick Stockton, LLP, a multinational law firm headquartered in Atlanta.