In a landmark ruling on September 6, 2023, the Georgia Supreme Court reiterated that Georgia courts are required to first adjudicate if a restrictive covenant is enforceable under local Georgia law prior to applying a foreign choice-of-law provision. This has significant implications, especially for multi-national corporations operating in Georgia and relying on restrictive covenants to protect their business interests.
Restrictive covenants are contract clauses that restrict a party’s actions. They can provide protection against the disclosure of a company’s confidential information, prevent competition, or restrict the poaching of clients and employees by former stakeholders. Thus, it is paramount for businesses to ensure their restrictive covenants are enforceable.
However, the application of these covenants in international contexts can be complex due to differences in the enforceability of such provisions across jurisdictions. This latest ruling implies that restrictive covenants that do not comply with the Georgia Restrictive Covenants Act (RCA) may not be enforceable, even if they would be under foreign law.
The ruling came about as the Georgia Supreme Court was considering a case where one party attempted to enforce a restrictive covenant under a foreign choice-of-law provision. The court found that the restrictive covenant did not comply with the RCA and therefore could not be enforced regardless of the foreign law.
Given this ruling, it would be wise for companies with restrictive covenants in their contracts to review and, if necessary, revise them to ensure they conform to the RCA. It would also be prudent for companies to seek counsel regarding how this decision may affect their ability to enforce their restrictive covenants in Georgia.
In another key aspect of the case, the court indicated that its decision was guided by the policy intent of the RCA, which is to afford protection to Georgia-based companies and employees. This may send a strong message to foreign entities seeking to enforce restrictive covenants in Georgia that conflict with local law or regulation.
For multinational corporations and law professionals alike, this decision serves as an important reminder to always consider the implications of local law when drafting and enforcing restrictive covenants, regardless of where the corporation is headquartered or the law they primarily operate under.
For a detailed analysis of the case and its repercussions, you can head over to the original write-up on JD Supra authored by experts from Littler, a global employment and labor law practice.