Non-Compete Agreements? Are They Worth the Paper They are Written On?
“Are these non-compete agreements worth the paper they are written on?” That is the first question I am usually asked when I speak to employers or employees about the enforcement of their non-compete agreements. And my response is usually the same. The agreements are generally worth the paper they are written on because they are enforceable in Florida under certain situations.
Non-compete agreements and agreements with other restrictive covenants are governed by Florida Statute Section 542.335. There are some basic requirements every non-compete agreement must meet in order to be enforced. First, the agreement must be in writing and signed by the employee. Second, it must further a “legitimate business interest”. Finally, it must be reasonable in time, area and line of business.
The term “legitimate business interest” is defined in the statute to include, but not be limited to: (1) trade secrets; (2) valuable confidential business or professional information that does not qualify as trade secrets; (3) substantial relationships with specific prospective or existing customers, patients or clients; (4) “client goodwill” relating to a “trade dress”; and (5) extraordinary or specialized training.
My experience is that of the areas listed above, the most common areas relate to former employees doing business with their former customers, patients or clients or also using confidential information belonging to the former employer. By way of a common example, a former employee leaves his or her old employer and takes a list of customers and their contact information to his or her new place of employment. He or she then contacts their former customers and seeks to transfer the business to their new employer. Assuming the other basic requirements are met, a court will generally enter an injunction enforcing the non-compete agreement and stopping the violations. Depending on the number of clients solicited, the court may limit the injunction to the customers the former employee contacted instead of stopping the former employee from altogether working for a competitor.
Likewise, if the former employee leaves his or her employer and takes trade secrets or confidential information, the courts also will generally enforce the agreement. The examples I see the most involve former employees taking information such as customer lists, pricing structures, and specific business and marketing plans.
One other popular question I am asked is whether the agreement is enforceable because the former employee cannot earn a living or obtain a job because of the agreement. The Florida Legislature addressed that exact issue and wrote specifically in the statute that the court is not allowed to consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought. Thus, even if the former employee argues that he or she has a family to support and they will not be able to do so if the agreement is enforced, the court will not consider that argument in deciding on whether to enforce the agreement.
The length of time a non-compete or restrictive covenant may be enforced is also a question that is frequently raised. The Florida Legislature attempted to address that issue by placing parameters in the statute. For example, any restraint 6 months or less is presumed reasonable and any restraint more than 2 years is presumed unreasonable. Courts have generally enforced restraints up to 2 years without question absent extraordinary factors.
The geographic location that is restricted is decided on a case-by-case basis. Most courts have allowed the enforcement within a certain radius of where the former employer conducts business. The area of agreements can be by county, distance or geographic area. In my experience, if the former employer does not conduct business in an area that may be covered by the non-compete, then the court will most likely limit the area of enforcement to that area where the former employer actually conducts business.
Another question I frequently hear is can a subsequent purchaser of a business enforce the non-compete agreement if the agreement was signed with the old company and not the new purchaser. The simple answer is “yes” assuming the agreement contains a provision allowing the assignment and enforcement by the new business.
What type of remedy exists for a violation of a non-compete or restrictive covenant? Generally, injunctive relief is the preferred remedy sought by a former employer. The employer wants to stop the violations and money damages are not always easy to collect or prove. Additionally, the statute allows for the prevailing party in the lawsuit to collect reasonable attorneys fees from the non-prevailing party. This means the former employee’s exposure is not only to an injunction, but also to the attorneys’ fees that are incurred by his or her former employer if the court rules in favor of the former employer.
With all of the reasons to enforce a non-compete, are there times they are not enforced? The short answer is “yes”, especially if the former employee does not solicit, sell to, contact or do any business with his or her old customers (and assuming they are not using confidential information or trade secrets). The general reason is that the actions of competition by the former employee are not really harming the former employer if the customers are still doing business with the former employer and not transferring their business to the new employer.
One major factor not addressed in this article is the fact specific circumstances every court examines in addressing the enforcement of a non-compete agreement. Having litigated and tried numerous cases over years, I can state with certainty that the proof of the violations, especially proof of soliciting, or doing business with, former customers is critical to whether a court will enforce a non-compete agreement.
So, the next time you wonder if a non-compete agreement is worth the paper it is written on, you will know that it is most definitely worth it, especially if supported by the specific facts and circumstances showing violation of the agreement.
Charles Samarkos is a partner at Johnson Pope and is also a Florida Bar Board Certified Civil Trial Attorney. He has litigated and tried numerous cases involving non-compete agreements and other restrictive covenants and provides counseling and advice to employers and employees regarding their rights and exposure concerning their specific non-compete agreements. He also works with his colleagues at Johnson Pope in drafting non-compete agreements.