07 LC 34
1076
House
Bill 667
By:
Representatives Levitas of the
82nd,
Chambers of the
81st,
Coan of the
101st,
Hill of the
21st,
Lunsford of the
110th,
and others
A
BILL TO BE ENTITLED
AN ACT
AN ACT
To
amend Chapter 8 of Title 13 of the Official Code of Georgia Annotated, relating
to illegal and void contracts generally, so as to provide that reasonable
restrictive covenants are valid restraints of trade or commerce; to provide for
related matters; to provide for an effective date and applicability; to repeal
conflicting laws; and for other purposes.
BE
IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:
SECTION
1.
Chapter
8 of Title 13 of the Official Code of Georgia Annotated, relating to illegal and
void contracts generally, is amended by adding a new Code section as
follows:
"13-8-2.2.
(a)
Notwithstanding any other provision of this chapter, enforcement of contracts
that restrict or prohibit competition during or after the term of restrictive
covenants, so long as such contracts are reasonable in time, area, and line of
business, is not prohibited. In any action concerning enforcement of a
restrictive covenant:
(1)
A court shall not enforce a restrictive covenant unless it is set forth in a
writing signed by the person against whom enforcement is sought;
(2)
The person seeking enforcement of a restrictive covenant shall plead and prove
the existence of one or more legitimate business interests justifying the
restrictive covenant. The term 'legitimate business interest' includes, but is
not limited to:
(A)
Trade secrets, as defined by Code Section 10-1-761 et seq.;
(B)
Valuable confidential business or professional information that otherwise does
not qualify as trade secrets;
(C)
Substantial relationships with specific prospective or existing customers,
patients, or clients;
(D)
Customer, patient, or client goodwill associated with:
(i)
An ongoing business or professional practice, by way of trade name, trademark,
service mark, or 'trade dress';
(ii)
A specific geographic location; or
(iii)
A specific marketing or trade area; and
(E)
Extraordinary or specialized training; and
(3)
Any restrictive covenant not supported by a legitimate business interest is
unlawful and is void and unenforceable.
(b)
A person seeking enforcement of a restrictive covenant also shall plead and
prove that the contractually specified restraint is reasonably necessary to
protect the legitimate business interest or interests justifying the
restriction. If a person seeking enforcement of the restrictive covenant
establishes prima facie that the restraint is reasonably necessary, the person
opposing enforcement has the burden of establishing that the contractually
specified restraint is overbroad, overlong, or otherwise not reasonably
necessary to protect the established legitimate business interest or
interests.
(c)
If a contractually specified restraint is overbroad, overlong, or otherwise not
reasonably necessary to protect the legitimate business interest or interests, a
court shall modify the restraint and grant only the relief reasonably necessary
to protect such interest or interests.
(d)
In determining the reasonableness in time of a postterm restrictive covenant not
predicated upon the protection of trade secrets, a court shall apply the
following rebuttable presumptions:
(1)
In the case of a restrictive covenant sought to be enforced against a former
employee, agent, or independent contractor, and not associated with the sale of
all or a part of:
(A)
The assets of a business or professional practice;
(B)
The shares of a corporation;
(C)
A partnership interest;
(D)
A limited liability company membership; or
(E)
An equity interest, of any other type, in a business or professional
practice,
a
court shall presume to be reasonable in time any restraint six months or less in
duration and shall presume to be unreasonable in time any restraint more than
two years in duration;
(2)
In the case of a restrictive covenant sought to be enforced against a former
distributor, dealer, franchisee, or licensee of a trademark or service mark and
not associated with the sale of all or a part of:
(A)
The assets of a business or professional practice;
(B)
The shares of a corporation;
(C)
A partnership interest;
(D)
A limited liability company membership; or
(E)
An equity interest, of any other type, in a business or professional
practice,
a
court shall presume to be reasonable in time any restraint one year or less in
duration and shall presume to be unreasonable in time any restraint more than
three years in duration; and
(3)
In the case of a restrictive covenant sought to be enforced against the seller
of all or a part of:
(A)
The assets of a business or professional practice;
(B)
The shares of a corporation;
(C)
A partnership interest;
(D)
A limited liability company membership; or
(E)
An equity interest, of any other type, in a business or professional
practice,
a
court shall presume to be reasonable in time any restraint three years or less
in duration and shall presume to be unreasonable in time any restraint more than
seven years in duration. All such presumptions shall be rebuttable
presumptions.
(e)
In determining the reasonableness in time of a postterm restrictive covenant
predicated upon the protection of trade secrets, a court shall presume to be
reasonable in time any restraint of five years or less and shall presume to be
unreasonable in time any restraint of more than ten years. All such
presumptions shall be rebuttable presumptions.
(f)
The court shall not refuse enforcement of a restrictive covenant on the ground
that the person seeking enforcement is a third-party beneficiary of such
contract or is an assignee or successor to a party to such contract,
provided:
(1)
In the case of a third-party beneficiary, the restrictive covenant expressly
identified the person as a third-party beneficiary of the contract and expressly
stated that the restrictive covenant was intended for the benefit of such
person; and
(2)
In the case of an assignee or successor, the restrictive covenant expressly
authorized enforcement by a party´s assignee or successor.
(g)
In determining the enforceability of a restrictive covenant, a
court:
(1)
Shall not consider any individualized economic or other hardship that might be
caused to the person against whom enforcement is sought;
(2)
May consider as a defense the fact that the person seeking enforcement no longer
continues in business in the area or line of business that is the subject of the
action to enforce the restrictive covenant only if such discontinuance of
business is not the result of a violation of the restriction;
(3)
Shall consider all other pertinent legal and equitable defenses;
and
(4)
Shall consider the effect of enforcement upon the public health, safety, and
welfare.
(h)
A court shall construe a restrictive covenant in favor of providing reasonable
protection to all legitimate business interests established by the person
seeking enforcement. A court shall not employ any rule of contract construction
that requires the court to construe a restrictive covenant narrowly, against the
restraint, or against the drafter of the contract.
(i)
No court may refuse enforcement of an otherwise enforceable restrictive covenant
on the ground that the contract violates public policy unless such public policy
is articulated specifically by the court and the court finds that the specified
public policy requirements substantially outweigh the need to protect the
legitimate business interest or interests established by the person seeking
enforcement of the restraint.
(j)
A court shall enforce a restrictive covenant by any appropriate and effective
remedy, including, but not limited to, temporary and permanent injunctions. The
violation of an enforceable restrictive covenant creates a presumption of
irreparable injury to the person seeking enforcement of a restrictive covenant.
No temporary injunction shall be entered unless the person seeking enforcement
of a restrictive covenant gives a proper bond, and the court shall not enforce
any contractual provision waiving the requirement of an injunction bond or
limiting the amount of such bond.
(k)
In the absence of a contractual provision authorizing an award of
attorney´s fees and costs to the prevailing party, a court may award
attorney´s fees and costs to the prevailing party in any action seeking
enforcement of, or challenging the enforceability of, a restrictive covenant. A
court shall not enforce any contractual provision limiting the court´s
authority under this subsection.
(l)
Nothing in this Code section shall be construed or interpreted to legalize or
make enforceable any restraint of trade or commerce otherwise illegal or
unenforceable under the laws of the United States or of this state.
(m)
This Code section shall apply prospectively, and it shall not apply in actions
determining the enforceability of restrictive covenants entered into before July
1, 2007."
SECTION
2.
This
Act shall become effective on July 1, 2007, and shall apply to restrictive
covenants entered into on or after that date.
SECTION
3.
All
laws and parts of laws in conflict with this Act are repealed.