What You Should Know Before You Sign A Non-Compete Agreement
Your potential new employer asks you to sign a non-compete agreement before taking a job or you have been employed for a while and your employer tells you one day that you must sign a non-compete agreement as a condition of continued employment. What do you do and are non-compete agreements enforceable in Florida?
Non-compete agreements are a tricky area of the law. Sometimes there is no easy answer. However, it is advisable to educate yourself before signing a non-compete agreement.
Non-compete agreements can arise in a variety of circumstances. Employment relationships, stockholder agreements and in connection of the sale of business are a few examples. Enforceability of the provisions will depend upon a variety of circumstances.
With certain exceptions, Florida law prohibits restraints on trade. One of the exceptions is non-compete agreements that meet the requirements of Florida Statute 542.335. Basically, the employer seeking enforcement of a non-compete agreement must establish the existence of one or more legitimate business interests justifying the non-compete provision. “Legitimate business interests” includes but are not limited to:
- Trade secrets as defined in Florida Statute 688.002(4);
- Valuable confidential business or professional information that otherwise does not qualify as trade secrets;
- Substantial relationships with specific, prospective or existing customers, patients or clients;
- Customer, patient or client goodwill associated with (a) an ongoing business or professional practice by way of trade name, trademark, service mark or “trade dress”, (b) a specific geographic location, or (c) a specific marketing or trade area; and,
- Extraordinary or specialized training.
After legitimate business interests have been established, the court will look at whether the non-compete is reasonably necessary to protect the interest. This would generally depend upon the facts of your individual case. However, much of the court’s analysis will be on (1) the extent of the geographic limitation, and (2) the duration of the non-compete agreement.
Florida Statutes provide some guidance as to whether the duration is presumptively reasonable and unreasonable. For instance, the statute indicates that six months is presumptively reasonable and more than two years is presumptively unreasonable. Anything in between may or may not be reasonable depending upon the circumstances.
The geographic limitation is more of an unknown as the Florida Statute does not provide any specific guidance. However, it is has been my experience that a court is unlikely to apply the non-compete agreement to an area in which the enforcing party does not do any business. Generally, the non-compete agreements will be enforced in those areas where the employer is actively engaged in business.
Even if the enforcing party is able to establish a legitimate business interest and a reasonable duration and geographic area, a defendant may have other defenses available which depend upon the facts and circumstances of the case.
For example, if the employer breaches the agreement by failing to pay all compensation due or failing to meet some other contractual employment obligation, the employee could be relieved of all obligations under the contract, including the requirement to abide by the non-competition agreement.
Another defense sometimes successfully utilized to defend non-compete agreements is the well-known principle of law of “unclean hands”. What that means is that one who seeks the aid of equity must do so with unclean hands.
Sometimes, a strategy used by an employee faced with the potential of being sued for violating a non-compete agreement is to take the offensive immediately and strike first. Tactically, this means that the employee attempts to turn the tables on the employer in order to gain the advantage. Therefore, an employee who may be faced with a threat of imminent litigation through the filing of an injunction for alleged breach of a non-compete may wish to consider a pre-emptive strike – the filing a declaratory action – which should seek a determination of the enforceability of the non-compete agreement and a declaration of its invalidity. Such a complaint may also incorporate other related issues and claims. This, of course, will depend upon the facts and circumstances.
Most employers, when faced with the decision to enforce a non-compete agreement, are seeking to protect their book of business, client lists, patient base, etc. It has been my experience that most judges will enforce employment agreements to protect the legitimate business interests associated with customer good will. Evidence of the former employee’s direct solicitation of customers will typically be the primary evidence that most employers will seek to bring to the court’s attention to enforce a non-compete agreement. Therefore, if an employee has signed a non-compete agreement and goes to work for a competitor, all effort should be taken to avoid solicitation of the former employer’s customers.
Many times, an employer will send out a letter to a former employee, who is subject to a non-compete agreement, advising that employee that the employees’ new employment with a competitor violates the non-compete agreement. It has been my experience that former employers may back off taking legal action if the new employee (and new employer) can provide assurances to the former employer that there will be no solicitation of the former employer’s customers.
An employee must contend with many concerns when faced with non-compete and litigation. The most prudent course for the employee is to consult with experienced counsel early on and work out a plan of action before leaving employment. If litigation occurs, in view of the high stakes involved, all defenses to injunctive relief should be investigated and potentially pursued. Determining whether the former employer materially breached the employment contract is of primary concern to the departing employee.