What Exactly Is A Non-Compete Agreement?
A non-compete is a legal clause, often found in employment contracts, that restricts employees from entering into competition with their former employers for a set period after leaving the job. Non-compete clauses are routinely used in employment agreements and in other contexts as well, but the latter are the focus here.
Depending on the particular language it employs, a non-compete may be fairly general or extremely specific about what the employee cannot do and, even more importantly, where they cannot do it. A non-compete can apply to employees, independent contractors, partners, officers, directors and shareholders . At least in Florida, non-compete agreements are not valid unless they are supported by "legitimate business interests." Florida Statutes, Section 542.335 provides an illustrative list, noting that "the legitimate business interests include, but are not limited to, trade secrets or confidential information, substantial relationships with specific prospective or existing customers, substantial, ongoing customer base," and several others.
In addition, employment contracts often have provisions concerning forfeiture of compensation and injunctive relief.
Are Non-Compete Agreements Legal in Florida?
Florida statutes provide the legal framework for non-compete agreements. To support a non-compete agreement, the employer must demonstrate that they fear or have suffered some type of irreparable damage that could justify the enforcement of the agreement. Florida Statutes Section 542.335 lists certain potential examples, including:
• the disclosure of trade secrets, confidential information, or proprietary information;
• the substantial and irreparable injury to the company customer relationships, industry reputation, or other similar interests;
• the possible threats to the (employer’s) goodwill; or
• the invasion of the (company’s) property rights.
Generally, Florida courts prefer non-compete agreements to not be overly broad in scope, in terms of how long they last, or how far from where the employee worked their prohibitions reach. Non-compete agreements are only enforceable as long as they are reasonably necessary to protect the employer’s legitimate business interests. The courts don’t like non-compete agreements where the restrictions run longer than they have to or are broader than necessary to protect a company’s legitimate business interests. This is why non-compete agreements, even with the require "legitimate business interest" qualifications, often are disputed in Florida courts, and eventually have to be litigates or settled. The Florida courts have ruled in several cases that non-compete agreements are not enforceable when they are limited in time, geographical scope, and restrictions against competing after the employment is terminated.
Limits and Restrictions
Geographical Restrictions. The territory restriction must be such that the former employee does not compete with the employer so long as the employer competes in the same area in which the former employee did. For example, in Reynolds, Smith & Hills, Inc. v. Summerlin, 541 So. 2d 1154 (Fla. 1d DCA 1989) the Court found that the area within 75 miles of Jacksonville would have been a valid geographical restriction on a non-compete because the former employee did business within 75 miles to Jacksonville. In Z EP, Inc. v. Mogul Palate, LLC, 2017 WL 10293485 (M.D. Fla. 2017), the federal district court dismissed a non-compete where the company limited its operations to the Tampa Bay area but restricted its former employees from the entire state of Florida. However, the Court found a 30 mile radius to be reasonable because its former employee worked in that area.
Temporal restrictions. For a non-compete to be enforceable, an employee may be restricted from competing for a time period no longer than five years after his employment ends. Depending on the business, a shorter period may also be enforceable. For example, when the business is selling products sold over the internet (and thus available anywhere), a nine month after employment ends restriction was reasonable in Violette v. Radiologic Clinic, P.A., 562 So. 2d 766 (Fla. 2d DCA 1990). Appropriately tailored time restrictions are narrowly evaluated by Florida courts.
Scope limitations. Florida statute, unlike many states, does not require that the non-compete restrict the former employee only to competing with customers who were served during their employment or prospective customers. But a restriction on competing with any customer of the employer regardless of whether the former employee had contact with that customer is "overly broad."
Enforcement and Litigation Issues
When a former employer seeks to prevent an ex-employee from competing and doing business with the former employer’s customers or clients, it will normally go to court and file a lawsuit to enjoin that activity. In Florida, the employer must demonstrate that the non-compete agreement is enforceable and that the former employee is actually violating the terms of the agreement. If the former employee is in fact violating the non-compete, the Court will consider whether the former employer should be awarded injunctive relief. If so, the Court will issue an order prohibiting the former employee from engaging in the activity which violates the non-compete and which is also harming the former employer. At this stage, the Court may enter a temporary injunction for a period of time until the case can be fully tried on the merits. The lawsuit litigation process ends when the case goes to trial or on motion for summary judgment. The Court should determine whether the non-compete is enforceable and whether a breach occurred. Nevertheless, litigation against former employees who violate non-compete agreements frequently involves counterclaims for breach of contract, breach of fiduciary duty, breach of the duty of loyalty, misappropriation of trade secrets, and tortious interference with a business relationship. In these types of cases, the employer is often forced to engage in discovery on these counterclaims to protect against exposure if it loses on the dispute concerning the enforceability of the non-compete. The defenses typically raised by former employees include lack of consideration, that the non-compete is overbroad, the non-compete violates Florida law, the non-compete is invalid, and the restrictive covenant does not protect a legitimate business interest. Down the road when the employer tries to eliminate or reduce the exposure resulting from these counterclaims, it can utilize the defenses it relied upon to challenge the enforceability of the non-compete.
How To Draft A Non-Compete Agreement
In light of the foregoing considerations and in order to avoid a finding that non-compete restrictions are overboard, an employer is wise to ensure that its non-compete agreements are tartly drafted. Distinctly, a non-compete agreement should not attempt to restrict a departing employee from working for every competitor in every way imaginable. Instead, the agreement should be as narrow as possible so as to effectively protect the employer’s interests without unnecessarily burdening an employee’s ability to find work. In this regard, Florida courts have stated that non-compete agreements are void when their terms apply "to everything [the employee] ever did for [the employer], before or during the employment." Georges v. Divine Living, LLC, No. 08-80767-CV, 2011 WL 1988879, at *3 (S.D.Fla. 2011). Generally speaking, non-compete restrictions should then be limited by a reasonable scope of activity sought to be restrained, a limited geographical area, and a limited period of time . Further, employers should explicitly meet their burden of proof by detailing all the necessary facts that show these temporal and spatial limitations are reasonable.
The timing of an employer’s request for a non-compete agreement can also improve its chances that a non-compete agreement will later be found to be enforceable. For instance, Florida courts view new employees who already have a full time job as being in a stronger position to negotiate the terms of their non-compete restriction than current employees being asked to sign a non-compete restriction during the course of their employment. See Howard Group, Inc. v. Smith, 45 So. 3d 34, 36 (Fla. 4th DCA 2010). In either circumstance, where an employee is being offered a non-compete agreement that is deemed to be unreasonable on its face, the burden is on the employer to show that a legitimate business interest exists to support the non-compete agreement’s restriction.
Important Considerations for Employees
Employee rights and considerations: non-compete agreements, or restrictive covenants, are enforceable in Florida (with very limited exceptions), so it is important to understand their scope and how they can affect your employment. You should consider consulting an attorney before signing a non-compete agreement or right after you have been asked to sign one. In negotiating a non-compete agreement, you should seek to limit the scope of any restriction. Some important questions to ask when considering a non-compete agreement include: The most common form of a non-compete agreement is a document that will restrict you from working for a competitor for a period of time and in a specific geographic area after your employment concludes. For a non-compete agreement to be enforceable, however, the employer must give you something in return. In legal terms, the employer must provide "consideration" when it requests that you sign a restrictive covenant, such as a non-compete. This means the employer must give you something in return for signing the document. The Florida Supreme Court has held that an offer of initial "employment, advancement, or other job benefits" is sufficient to support the request to sign the restrictive covenant. Although consideration must be given, it need not be anything substantial. This is why an employer might offer you a promotion or a salary increase in exchange for signing a non-compete agreement. The offer of a promotion or increase in pay is an example of what Florida courts have found to be sufficient consideration for signing a non-compete. Importantly, the employer’s offer must be made before the date you sign the agreement and prior to the date of your termination. It is not enough to give you a promotion or raise after you sign the agreement, or after you receive notice of the termination of your employment. Even if a non-compete agreement is otherwise enforceable, Florida law prohibits the enforcement of provisions in the agreement that are overly broad. The Florida courts have held that while an employer can ask you not compete with them after your employment concludes, the restraint must be reasonable in time and geographic scope. Florida courts will generally strike down a non-compete agreement if it imposes any greater restraint than is necessary to protect the legitimate business interests of the former employer. Non-compete agreements are sometimes signed as part of an employment contract. However, in many cases, non-compete agreements are presented to employees for signature on a "take it or leave it" basis. If employers were required to provide additional consideration for a restrictive covenant by offering more than they would have otherwise paid the employee, an employer would likely just choose to pay the employee less. So, while the requirement of additional consideration for restrictive covenants sounds good, it would likely have the effect of reducing the amount you are currently paid by your employer.
Alternatives To The Non-Compete Agreement
Employers in Florida often have other available options to protect their legitimate business interests, which don’t involve or require non-compete agreements. These include:
Non-Solicitation Agreements. Employers can protect their business interests by using carefully drafted non-solicitation agreements which simply prohibit employees from soliciting other employees of the former employer or customers of the former employer.
Confidentiality Agreements. Confidentiality agreements can be used by employers to prevent the disclosure of confidential information, such as trade secrets or client lists. Trade secret law protects against the unauthorized use or disclosure of information that is owned, has value, and is maintained in confidence . Customers or prospective customers can also be added as parties to the agreement.
Garden Leave Agreements. Garden leave provisions or agreements suspend an employee from working for a period of time, during which the employee serves his notice period (two weeks, two months, etc.). During this time, the former employee must continue to be paid and benefits provided for the duration of the notice period. This is generally in exchange for the former employee’s consent to not work for a competitor or start a new business for the duration of the notice period. It is important to note, that garden leave provisions are used relatively rarely and are only appropriate in exceptional circumstances.