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What Are Restrictive Covenants and How Do They Affect Your Business?

Restrictive covenants are an important aspect of business law. In a business agreement, restrictive covenants allow both parties to engage in their respective duties while protecting confidential information, and other assets.

In the past, Georgia was one of the most difficult states in which businesses could enforce their restrictive covenant agreements. But a new statute was put in place that affected their enforcement in a court of law.

Understanding restrictive covenants and the impacts they can have on today’s businesses is critical to protecting your interests in any agreement.

Restrictive Covenants

A restrictive covenant is designed to protect the interests and assets of one party when they’ve been given to a second party as a means to provide the organization with some benefit.

Examples of property include physical property, business relationships, employees, and confidential information.

These are typically exchanged between employers and employees as well as business partnerships, independent contractors, and others.

Restrictive covenants are used by manufacturers, distributors, franchises, and business buyers and sellers. Examples include agreements related to confidentiality, non-compete, and non-solicitation restrictions.

Georgia laws have always tried to prohibit attempts to restrain trade, which made restrictive covenants difficult to enforce. But the Restrictive Covenants Act of 2010 was put in place as a way to give businesses enhanced investment protection.

The Impact of Restrictive Covenant Legislation

The new statute simplifies the details related to restrictive covenants in Georgia state law. It allows businesses and legal professionals to refer to a single statute when addressing non-compete, non-solicitation, and other restrictive covenant cases.

Many believed that the new statute would result in a rise in restrictive covenant cases and appeals. But cases related to restrictive covenant issues may require more time to resolve.

Courts are now more likely to refer to the underlying facts related to a case, which increases the time required for discovery and hearings.

This may also increase the cost of taking legal actions, especially in cases involving non-compete restrictions. The high cost of processing these cases may cause individuals to avoid taking this route. 

In the past, rulings on non-compete cases would be delivered quickly. Under the new statute, litigants need to carefully consider whether or not to pursue legal actions.

Restrictive Covenants and Business

Employees, business partners, and other key individuals and organizations may need access to information related to businesses and their customers.

Sales representatives may require these assets in order to generate revenue for employers while providing greater value to customers and clients.

Restrictive covenants prevent issues that impact the revenue, brand, and reputation of today’s businesses. They prevent employees from soliciting vendors, customers, and others to advance their own interests.

Restrictive covenants may have an impact on employee mobility. Employees are less likely to pursue other employment opportunities when restrictive covenants are in place.

This gives businesses additional protection by ensuring the that their intellectual property and other assets remain within the organization.

But businesses aren’t completely safe from restrictive covenant litigation, and they must often enforce their agreements when some breach occurs.

Understanding the complexities of these agreements is the first step in protecting your business. Consulting with a skilled legal professional provides you with the options that are right for your needs.

Restrictive covenants help businesses maintain their interests while working with others. Protecting your business assets is a fundamental step in achieving lasting industry success.

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