Georgia Law Resolves Non-Compete Dispute


It was the poet John Godfrey Saxe who said, “Laws, like sausages, cease to inspire respect in proportion as we know how they are made.”  Given the legislative machinations necessary to properly enact a ballot question supported by the IFA and passed by over 67% of the Georgia electorate, one might find solace in this statement.

 Governor Nathan Deal recently signed into law a revised version of a constitutional amendment, which was passed the voters in November, 2010.  The new legislation was needed to correct ambiguity surrounding the official enactment date of the amendment. 

Despite having a clear enactment date listed in the legislative petition containing the amendment, it did not have an enactment date listed in either the resolution proposing the amendment or the amendment text itself, as specifically required by the Constitution of the State of Georgia.  Moreover, the date that was listed in the legislative petition containing the amendment differed from the enactment date set forth in the Constitution for all amendments that do not have a specific enactment date.

While a reasonable argument could be made to support both possible enactment dates, the likelihood of future legal challenges based on the questionable enactment date loomed too large for state legislators.  To remove all such uncertainty, a legislative fix, House Bill 30, was introduced at the start of the 2011 legislative session to make the Restrictive Covenant Act, as contained in the constitutional amendment, effective upon the signature of the Governor.  Governor Deal signed the new law on May 11.

The IFA, along with many of its members in Georgia, supported the passage of Question 1.  The IFA has long supported efforts to reform Georgia’s rules for in-term and post-term non-compete clauses in employment and business contracts, including franchise agreements.  The enforcement of in-term covenants not to compete is central to the concept of franchising, a chief mechanism for protecting a brand’s unique systems and proprietary concepts.

The IFA also recognizes, however, that the law should not prevent someone from further pursuing their entrepreneurial spirit, believing post-term covenants should be treated as a distinctly different mechanism once a franchisee leaves a system.  But within the term of a franchise agreement, non-compete clauses are essential to protecting the value of the franchisee’s investment as well as the intellectual property maintained by the franchisor. 

Posted by Wayne Weikel, IFA Director of State Government Relations & Public Policy