Constitutional amendments, referendum summarized

Published 8:15 pm Tuesday, October 19, 2010

The Georgia Press Association is offering summaries on the five constitutional amendments and the single statewide referendum on the General Election ballot.

Early voting is presently going on at the Courthouse Annex in Decatur County, and the General Election is on Nov. 2.

Amendment No. 1

“Allows competitive contracts to be enforced in Georgia courts.”

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Not only is this a harmful amendment for most Georgians, the caption on the ballot is a fraud. This amendment, instead of promoting competition, will enable mainly out-of-state companies to restrict Georgia employees from going to work for others or starting their own businesses.

This is the handiwork of mainly out-of-state companies and their lobbyists. It will do just the opposite of the description on the ballot; it will stifle the growth of small business and the mobility of employees.

The Georgia Constitution currently provides at Article III, Section VI, Paragraph V(c) that a contract “which may have the effect or which is intended to have the effect of defeating or lessening competition, or encouraging a monopoly [is] unlawful and void.”

Following this provision of the Constitution, the Georgia appellate courts have set clear limits on the restrictions an employer may put on employees who leave to go to work for themselves or another. These are the types of things that employers may not put in their contracts:

• They may not prevent employees from working in “any capacity” for another. The contract must limit the former employee from doing the type of work for a new employer which would actually be competitive with the former employer.

• An employer can prevent a former employee from soliciting existing clients, but it is unlawful to prevent a client or customer from deciding on his or her own to do business with the former employee.

• A prohibition of competition is invalid if it extends to territories where the current employer does not even do business.

• A prohibition against competition for an excessive time is illegal.

• A prohibition is invalid if it does not clearly set forth the types of business and the places where the former employee is prohibited from working or competing. The former employee cannot be made to “guess” where it is legal or not to work.

• A prohibition on disclosure of information by a former employee is not valid unless it is limited by a reasonable number of years or involves an actual trade secret. It serves no public purpose to bar an employee from using information that is stale or publicly known.

Moreover, the Georgia Supreme Court has held that if a restrictive covenant is invalid in one respect, the courts will not enforce any of it. To do otherwise would allow the employer to get the benefit of coercing a former employee to work under a contract which contains one or more invalid provisions.

As a result of this body of law, there are thousands of Georgians who have been able to leave one employer and start their own businesses or work for others in fields as diverse as medicine, pharmacy, accounting, insurance, customer service, telecommunications and retailing. At the same time, employers who are careful to have restrictive covenants drawn in compliance with Georgia law have no difficulty when they do not try to restrict employees beyond what the law allows.

Now to this amendment: HR 178 is the proposed amendment. It frames the question as whether “to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements.” The legislation to do this has already been passed at O.C.G.A. § 13-8-50, but for the legislation to go into effect, the constitutional amendment must first pass.

The heart of § 13-8-50 is that it will give the employers a second chance to go to court and have a judge replace any provision that is unlawful with a new provision crafted by the judge which the judge feels is reasonable. Thus instead of bringing certainty to the law, the constitutional amendment and its companion legislation would put everything in the hands of judges; create more litigation than before; and decidedly tilt the table in favor of employers who have the resources to go to court and get what are now unlawful restrictions on employees modified and thus deter the ability of an employee to risk leaving to go into business for himself or with another. It is a mechanism to allow employers to have “unreasonable” and “unenforceable” agreements made over: a “doover” at the expense of employees who may wish to leave.

Usually there is a tendency to pass amendments with a confusing ballot description like this. Folks will not pay enough attention to know that this is really a terrible proposal. Newspapers can help by telling what is really at stake.

Amendment No. 2

“Adds $10 tag fee on private passenger vehicles to fund statewide trauma care expansion.”

This amendment would apply to tags for vehicles carrying 10 or fewer passengers, and includes pickups, motorcycles, SUVs and vans. For these, a $10 extra charge would be added to the license tag and registration fee each year. The proceeds would have to go into a trust fund created by the General Assembly to be used specifically for trauma care.

News articles and statements from health care professionals have made a strong case that the State of Georgia is inadequately served by the existing trauma care facilities and networks. If these funds are specifically dedicated for that purpose, the $10 fee per license tag is a reasonable method to generate a needed source of revenue.

Amendment No. 3

“To allow the Georgia Department of Transportation to enter into multi-year construction agreements without appropriations in the current fiscal year for the total amount of payments that would be due under the entire agreement so as to reduce long-term construction costs paid by the state.”

This would allow the General Assembly to authorize the Georgia DOT to enter into construction contracts of up to 10 years in duration without having the full funds of the contract on hand in any given year. As a safety valve to protect against situations like the current downturn, the constitutional amendment would provide that the long-term agreement would terminate “in the event of insufficiency of funds.”

This appears to be a reasonable method to provide the Georgia DOT with a measure of additional flexibility in paying for long-term projects. Without this amendment there has been conflict on the legality of long-term contracts without the state having all funds on hand at the time of commencement. The amendment will allow larger projects to go forward without legal uncertainty.

Amendment No. 4

“Allow the state to execute multi-year contracts for projects to improve energy efficiency and conservation.”

This amendment would allow the General Assembly to pass legislation to permit state government entities to incur debt to enter multi-year contracts up to 10 years for purposes of energy efficiency or conservation. The safety valve to the amendment is that payments to be owed by the state would be guaranteed by contractors or vendors to the state to be offset by savings or revenue gains from the improvements. The amendment also avoids the legal concern about long-term contracts to be paid for over time.

This seems like a win-win situation. State departments would be authorized to undertake improvements for energy efficiency or conservation, and the contractors with whom they enter these arrangements will have to guarantee that energy savings or revenue gains will offset the amounts that the state has to pay for the improvements.

The amendment also eliminates legal concerns about long-term contracts having to have all funds available at the time of commencement.

Amendment No. 5

“Allows owners of industrial-zoned property to choose to remove industrial designation from their property.”

This amendment is to allow Chatham and Jefferson Davis counties to bring certain previously designated “industrial areas” back under local government taxation, zoning and services.

Referendum A

“Provides for inventory of businesses to be exempt from state property tax.”

Georgia is one of six states that still imposes an ad valorem tax on inventory held for sale by businesses. Georgia, along with many other states, also allows local governments and school boards to tax business inventory. This particular referendum is addressed to the State of Georgia’s tax on business inventory.

For example, at the end of 2009, the Savannah Morning News reported that business inventory taxes for the county amounted to $362,000 paid to the State of Georgia and more than $35 million to Chatham County and to the Chatham County Board of Education. So in the overall scheme of things, the amount of the tax that the state collects is relatively modest. The question is whether the tax collected by the state is a sufficient deterrent to businesses having inventory in the State of Georgia that the loss of revenue would be overcome by a growth in business activity that would generate other revenues.

However, since the local government and Board of Education inventory taxes will remain in place, eliminating the state portion of the inventory tax is not likely to be a significant factor in decision making by businesses that maintain inventory for sale.

Another factor in the equation is that certain businesses have received exemption from the legislature on their property subject to ad valorem taxation. One argument in favor of the exemption proposed in this referendum is that it would treat business inventory equally with other business property that has been exempted.

One final point to consider, and this may be the clincher, is that there is a bipartisan commission at work currently in Georgia to make recommendations concerning the state’s overall tax system. Rather than piecemeal in another exemption, perhaps the wisest course would be to wait for the recommendations of the commission and the passage by the General Assembly of a comprehensive package dealing with taxation and all existing exemptions.