Saturday, January 29, 2011
The New Georgia Noncompete Law: Was Amendment 1 to the Georgia Constitution Legal?
"Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?"
The backdrop is that for years many Georgia lawyers and companies have been upset about what they saw as always shifting sands about how to draft restrictive covenants that would be able to legally tie down employees, business partners, shareholders, and franchisees from taking away business if things did not work out and they got a "corporate divorce." Georgia became perceived as a state where it was hard if not impossible to enforce these restrictions on people, and other states around the South had laws that seemingly made it easier to draft an enforceable covenant, and if a bad lawyer drafted a bad covenant in those states, the judge could simply rewrite the restriction and water it down to where it was legal.
That way, you see, the lawyer and client could never really screw up and get in big trouble for writing an unenforceable covenant. If the lawyer went too far, the judge could reign her and the business in and change the language of the deal. In Georgia it was all or nothing, if any of the language of the deal was wrong, the restriction was totally worthless and the dearly departed were free to do as they wished. Two things to understand are that (1) lawyers really hate being wrong, moreso than most folks, and (2) lawyers have a big influence on what the laws are. Of course, it was frustrating to try to write a restrictive covenant that was enforceable only to find out later that it did not pass muster.
In 1990 a law was passed by the Georgia legislature to make restrictive covenants easier to enforce and to try to clarify what was a good covenant and what was a bad covenant. However, based on one of the rights in the Georgia Constitution (which is not contained in the US Constituion) the courts struck down the new law as unconsitutional. So, in order for the Georgia Legislature to get its way, it had to get the voters to amend the Constitution. Supposedly, that happened last Novemenber. What many may not have known was that the Legislature had already passed a law that was waiting in the wings to go "live" once the votes on the Amendment were counted. That law makes it easier to enforec a covenant because if the lawyers screw up the judge can take out the bad language and enforce the part that works. Laywers call that "blue pencilling." (Why blue? Who knows. I edit with a red pen just like all my teachers did).
Still, did the Georgia voters know what they were voting on? After all, as you can see below, none of the words that would have been a "heads up" to voters about what was really at stake in the Amendment appeared in the text. The Amendment was about what lawyers call "restrictive covenants" that come in the form of "noncompetes," "nonsolicitations," "confidentiality agreements" "trade secret agreements" and the like. They are called restrictive because that is what they do, they restrict someone from doing anything that might take value away from the old business. However, as you can see for yourself, the words I just listed above, namely "noncompete" or "restrictive covenant" did not appear on the ballot. Popular Libertarian radio personality Neil Boortz himself pointed out the vague and misleading language that was contained in the Amendment.
What is obvious is that the authors of the statute made their own policy choice that the law was good for Georgia, but they feared that if they "kept it real" and used the customery terms lawyers had used for the deals, the Georgia voters might not pass the Amendment to the Constitution necessary to legalize the law they had already passed. So, restrictive covenants, noncompetes, nonsolicitations, confidentiality agreements, and the like became "competitive agreements." Well, who in the world is against competitive agreements? That sounds a lot more patriotic than "restrictive covenant" does it not?
I have not really formed an opinion whether the new law is really good for business in Georgia, although I discussed some of the pros and cons in an earlier post. I have been on both sides of these cases representing the companies in some cases and the not so dearly departed in others. There are two sides to the debate and whether they are good depends on which side you are on in a corporate divorce. Superlawyer and mensch Ben Fink discussed whether the new law is really good for business thoroughly in his recent blog post. However, the way this Amendment went down raises a red flag in the libertarian in me. I never followed the debate over the law, and I did not pay much attention to the politics surrounding it. I saw the Amendment for the first time right before the election. When I saw it, a red flag went up immediately in my mind.
The bottom line is that, other than in the Leglislature (And who follows that boring noise? Could you pass the sports page, please?), it seems like there really was no robust and public debate on whether this new law really was about "competitive agreements" or "agreements lowering salaries for salesmen" or "agreements making it harder to start a new company." I still have not heard anyone explain how it was legal to pass the new law making noncompetes and nonsolicitation agreements much more enforceable based on the language of the Amendment Georgia voters had to pass last November. How could the new law, called the Restrictive Covenant Act, come into law without the Amendment containing the words "restrictive covenant?" How could it pass without the words "noncompete," "nonsolicitation" and other words of customery usage that define the subject matter of the Amendment? How could a constitutional amendment about the right to bear arms be passed without the word "gun" or "weapon" in it? After all, Georgia courts for a century have labeled these agreements as impediments to the freedom of the people of Georgia to do what they want with their life, regardless of what their boss thinks.
I am no scholar on constitutional law but in the legal world there is a concept in ruling on statutes that is called "void for vagueness." Sometimes is a court decides that the way a law is written is too vague to figure out what it really wants people to do or not do. So the court will strike down the law as void for vagueness. It appears to me that this Amendment should be subject to a challenge as being void for vagueness. If that happened the voters would have to go to the polls and vote on a more clear amendment that explained what the new law was about. From this perch, that seems like the right thing to do. What happened in November smacks of elitism -- a lack of trust in the Georgia people to make their own decisions based on reality. Would Georgia's Founding Fathers countenance such a thing? I do not think so.
You may be wondering at this point why lawyers would support such a law if it might restrict them from the freedom to practice law as they see fit. Well, the secret is that the new law does not apply to lawyers. There is another law for lawyers, that says that it is illegal for lawyers to enter into noncompetes or nonsolicitations. Pretty clever, aren't we?
"Perfect freedom is reserved for the man who lives by his own work and in that work does what he wants to do."
Samuel Taylor Coleridge
"The first sign of corruption in a society that is still alive is that the end justifies the means. "