Non-Compete Agreements Defined
Non-compete agreements are contracts between an employer and an employee. They lay out a number of restrictions placed on the employee that go into effect after the working relationship ends. Specifically, employers are concerned with potential "knowledge or trade secret stealing" by employees following their separation.
In essence, non-compete agreements protect against the employee working for a competitor, soliciting your clients or taking steps to gain access to sensitive information. Non-compete agreements can also be restrictive when it comes to the geographical location in which the business can operate, meaning they can prevent you from working in the industry for that particular business anywhere in the world.
While non-compete agreements were once extremely common, they have become more prevalent in the 21st century due to the rising costs of doing business. There are several concerns for business owners that have helped to bolster the use of non-compete agreements .
One of the biggest concerns that a business owner has is the risk of losing its clientele. If a business owner is successful, it will build up a substantial amount of goodwill. Goodwill is a term used to describe the amount that a business is worth after its assets have been accounted for.
Goodwill is connected with the relationships that you have built in the industry and among your clientele, and it is something that could very quickly disappear in the event that a former employee begins working for a rival company. A non-compete agreement is designed to prevent that from happening.
Therefore, when you ask an employee to sign a non-compete agreement, you are essentially trying to ensure that you get continued value for the goodwill that you have built up over the years. The most common situation involves protections against using customer lists to compete. Soliciting your clients is a way that an ex-employee can do significant damage.
Governing Law for Florida Non-Compete Agreements
The primary statute that governs non-compete agreements in Florida is Florida Statute § 542.335. Florida Statute § 542.335 provides that a valid restrictive covenant must protect a "legitimate business interest." These interests can include trade secrets, confidential information, substantial relationships with specific customers or clients, customer goodwill and extraordinary or specialized training. If a court finds that a restrictive covenant contains a contract or remedy provision that (1) does not not protect a legitimate business interest, (2) is not reasonably necessary to protect the legitimate business interest or (3) creates broader restraint than necessary to protect the legitimate business interest, then that contract or remedy provision is subject to partial enforcement, as opposed to being enforced by its terms.
Florida’s Enforceability Requirements
For a non-compete agreement to be enforceable in Florida, it must meet specific criteria as established by Florida Statutes. A central tenet for determining the enforceability of a non-compete is whether the employer’s interest that the agreement seeks to protect is "legitimate." Legitimacy can be determined by the type of business the employer conducts, and if that business contains trade secrets or confidential information that could be used by a competitor to harm that employer.
Florida law also requires that a non-compete have reasonable time, geographic, and scope limitations. The primary statute outlining these requirements gives the following guidance: "in determining whether a restraint is reasonable, a court considers the temporal duration of the restraint, the geographic area protected by the restraint, and the scope of prohibited activities." Florida Statute § 542.335(1)(b). In this statute, "reasonableness" calls for a balancing of the employer’s need to protect its legitimate business interest against the hardship that enforcement of the agreement would impose on the employee. Courts can modify unreasonable non-compete agreements by reformation, which allows the court to "blue pencil" the offending clause of the agreement to remove the offending language but still leave the agreement in place.
Enforceability Issues in Florida
One of the most common challenges when it comes to non-compete agreements is whether or not they are actually enforceable. Florida courts are quick to point out that retroactive non-compete agreements are unenforceable because they lack consideration. For example, your employer may have given you a promotion and in return forced you to sign a non-compete agreement. Because the employer’s consideration of a promotion was a "past consideration," it could not be taken into account when determining the enforceability of a non-compete agreement. Past consideration cannot satisfy the requirement for a written non-compete agreement under Florida Statute Section 542.335.
Many times there is a question of ambiguity in the language of your non-compete agreement. Ambiguity is present if there are two reasonable interpretations of the non-compete agreement. In many instances, what happens is that there is a mistake made by an attorney when drafting the non-compete. Unfortunately, it is your responsibility to know the type of work that you signed up to do for your employer. If the scope of work that you are doing changes over time, the non-compete agreement should be amended/modified to reflect your business interests and protect them from being a target of unfair competitive practices. If the language of the non-compete agreement is ambiguous on this subject, you can raise this as a defense in a Court of Law.
Sometimes the non-compete agreement is not clear as to what a violation is and therefore, the non-compete agreement is rendered meaningless. For instance, if the non-compete agreement says that you cannot work in the same industry for a period of one (1) year, this may not mean much because the term or meaning of "same industry" is entirely ambiguous and/or subject to interpretation. This is a problem for the employer from the start as it would be difficult and expensive to litigate. Imagine having to go to Court only to realize that the non-compete agreement is really open to interpretation and the judge does not have enough evidence to determine what the extent of the violation is. Most likely, the employer would lose and have to spend thousands of dollars in attorney’s fees just to prove that the agreement was invalid.
In Florida, a non-compete agreement can be enforced even if it has never been signed by your employer. Maybe the agreement was presented to you as a condition of employment, but you never signed it. Once you have violated the terms of the agreement, the employer can go ahead and try to enforce it. This would be a "breach of contract" claim. In essence, the company would be required to show that there was actually a breach of contract and a copy of the contract would be helpful to prove its case. However, the company may not even need to prove the breach of contract in order for a Florida Court to award a temporary injunction. In some instances, judges may grant temporary injunctive relief without any evidence that a breach of contract occurred.
Recent Developments in Case Law
The impact of recent case law is also relevant in this area. The rules governing enforceability of non-compete clauses have been applied in various ways over the last few years. In 2016, the Florida Supreme Court refused to adopt the U.S. Sixth Circuit Court of Appeal’s request for clarification of the law regarding non-compete covenants and the "rule of reason."
After Royal & Sun Alliance vs. Montrose in the late 90’s, it would appear that a vague or poorly written non-compete agreement is fatal, and courts have ruled against such non-competes without regard to the intent or knowledge of the customer. Agee vs. Ford Motor Company showed a willingness by the Florida courts to re-impose the "totality of the circumstance" test that had been applied by the court prior to the Royal & Sun decision, but the Florida Supreme Court was not willing to adopt that method. Still, after Agee, it became apparent that the courts would be willing to consider the entire reason for the purchase and use of non-compete language when deciding issues on enforceability.
The courts’ consideration of the entire context of any non-compete agreement almost certainly helped in the case of White v. Mederi Caretenders Visiting Services of Southeast Florida. There, the homeowner’s association hired a new management company, and an employee of the homeowner’s association signed a non-compete agreement with that company preventing her from working with another company with which she had previously partnered . When the employee subsequently left to work for the other company, the homeowners’ association brought a claim against her for breach of the covenant. A trial court immediately granted a motion to dismiss, stating that Florida Statutes determined the scope and breadth of the agreement, so the agreement was unenforceable. On appeal, the Fourth District Court of Appeal reversed and held that agreements applicable to "homeowners’ associations" were governed by statutes, but that those agreements were still constrained by the constraints placed on non-compete agreements in general. The appellate court also indicated that, although the statute contained language about the scope of that particular type of non-compete agreement, the courts should still be careful not to enforce overly broad provisions. The case was remanded to the trial court for further review and determination of whether the covenant was overly broad.
One constant, apparently, is the courts’ emphasis on considering the entire context of the situation leading to the creation of the non-compete. The courts appear willing to dissect the situation and the intent of the parties, looking for more than just the words of the agreement to determine whether the covenant breaches public policy.
Employer and Employee Practice Pointers
For employers, it is recommended that you consider a non-compete agreement, particularly if you are in a competitive business with employees that may in fact be privy trade secrets or confidential information. While it is usually standard procedure for Florida employers to require new employees to enter into some form of confidentiality agreement, many Florida employers fail to include even a general geographic and temporal restrictions on their employees. The failure to do so usually results in inevitable loss of trade secrets, in the face of a departure by the employee. Also, be prepared to use available technology to monitor employee activity. This may be as simple as monitoring Internet use at work or even reviewing records of phone conversations. In some cases, an expert may be required in order to replicate trade secrets and track down how former employees attempt to use your trade secrets after they leave your employ. For employees, be cautious about agreeing to any non-compete agreement. When reviewing any such agreement, as mentioned above, check the agreement for a reasonable scope and a reasonable duration. If it is not, consider seeking out legal counsel prior to signing. Companies very rarely write or create non-compete agreements for their employees unless compelled to do so as part of an ongoing negotiation with the employee. Thus, if the company requires you to sign or has you review a non-compete agreement, it is likely that it is prepared to enforce its terms against you.
Rapid Recap
From the cases that we’ve discussed, you should be able to see that the enforceability of non-compete agreements in Florida varies on a case-by-case basis. There are just certain factors that will support or negate enforcement, such as whether the geographic scope and duration of the agreement is too broad (occupationally or geographically) and whether there is an improper purpose behind the agreement (i.e., whether the employer wants to stifle competition or simply make sure that workers do not steal its customers for future benefit) .
Our experience has been that many employers draft non-compete agreements without properly considering Florida’s requirements. Some do so knowingly, and some do so because they may not have any more need for them than a mere hand-shake. We find it useful to remind employers that, if they want the non-compete to be enforceable, they cannot just switch from a hand shake to putting their agreement in writing without also ensuring that the agreement meets Florida’s requirements. Otherwise, what’s the point?