Non-Compete Agreements-An Invalid Restraint On Trade?

A valid, enforceable restrictive covenant, or non-compete agreement, can be a powerful business tool in protecting your business assets. Many companies rely on non-compete agreements to protect trade secrets. Florida law is specific on the requirements to create a valid and legally binding non-compete agreement.

If you have questions regarding creating, signing, or enforcing a valid non-compete agreement, consult our experienced attorneys at Cantwell & Goldman, P.A. today. Our attorneys' expertise can help make sure that your non-compete agreements are fair and enforceable.

WHAT IS A NON-COMPETE AGREEMENT?

Historically, non-compete agreements were viewed as an invalid restraint on trade or commerce and contrary to public policy. However, under Florida Statute 542.335, non-compete agreements are enforceable if they protect one or more legitimate business interests.

A non-compete agreement, also known as a noncompetition agreement, restrictive covenant, or covenant not to compete, is an agreement wherein an employee agrees to not enter into a contract or participate in a trade practice or profession that will compete with his employer. Florida Statute 542.335 specifically provides that a court will not enforce a non-compete agreement unless it is in writing and signed by the employee.

The employer seeking enforcement of a non-compete agreement must establish the following:

  1. The existence of one or more legitimate business interests justifying the non-compete provision; and
  2. That the language in the non-compete is reasonably necessary to protect the legitimate business interest justifying the restriction.

A well-drafted, enforceable non-compete agreement, which meets the requirements of Florida Statute 542.335, can offer significant protection to employers.

LEGITIMATE BUSINESS INTERESTS

According to Florida Statute 542.335, unless the party enforcing the non-compete agreement can show at least one legitimate business interest, the non-compete agreement is void and unenforceable.

Under Florida Statute 542.335(b), legitimate business interests may include, but are not limited to:

  • Trade secrets.
  • Valuable confidential business or professional information that otherwise does not qualify as trade secrets.
  • Substantial relationships with prospective or existing customers, patients, or clients.
  • Customer, patient, or client goodwill associated with:
  • An ongoing business or professional practice, by way of trade name, trademark, service mark, or "trade dress;"
  • A specific geographic location; or
  • A specific marketing or trade area.
  • Extraordinary or specialized training.

When determining if an interest is a legitimate business interest, it is important to understand that the interests specifically listed in the statute comprise a non-exclusive list. If you have questions regarding whether a business interest qualifies as a "legitimate business interest" under Florida law, please contact us.

WHAT IS A REASONABLE TIME?

An enforceable non-compete agreement must be reasonable in duration. Duration refers to the length of time in which a non-compete agreement remains valid and enforceable. The duration varies depending upon the specific kind of non-compete agreement that is being enforced. If the non-compete agreement being enforced is against an employee, the duration of the agreement must be shorter in time in order to be presumed reasonable, whereas, a non-compete agreement enforced against a distributor or seller of a business may have a longer duration.

Even though Florida Statute 542.335 creates presumptions for and against enforcement of a reasonable time restraint, these presumptions may be rebutted if a party can show a reasonable basis for the relevant duration provision.

Former Employee, Agent, or Independent Contractor

According to Florida Statute 542.335, a non-compete agreement enforced against a former employee, agent, or independent contractor, shall be presumed reasonable in time any restraint which is six (6) months or less in duration and unreasonable in time any restraint exceeds two (2) years in duration.

An important fact to note is that Florida's non-compete statute creates no presumption for or against an employer or employee when the duration is between six (6) months and two (2) years.

Former Distributer, Dealer, Franchisee, or Licensee of a Trademark or Service Mark

A non-compete agreement enforced against a former distributor, dealer, franchisee, or licensee of a trademark or service mark shall be presumed reasonable in time any restraint which is one (1) year or less in duration and unreasonable in time any restraint more than three (3) years in duration.

Again, Florida's non-compete statute creates no presumption for or against a non-compete agreement between one (1) year and three (3) years.

Seller

A non-compete agreement enforced against the seller of all or a part of:

  1. The assets of a business or professional practice, or
  2. The shares of a corporation, or
  3. A partnership interest, or
  4. A limited liability company membership, or
  5. An equity interest, of any other type, in a business or professional practice,

shall be presumed reasonable in time any restraint three (3) years or less and unreasonable in time any restraint more than seven (7) years.

Florida's non-compete statute creates no presumption for or against a non-compete agreement between three (3) years and seven (7) years.

Trade Secrets

In determining the reasonableness in time of a post-term restrictive covenant based on the protection of trade secrets, a court shall presume reasonable any restraint of five (5) years or less and unreasonable any restraint of more than ten (10) years.

WHAT IS A REASONABLE GEOGRAPHIC SCOPE?

Florida Statute 542.335 does not provide a detailed framework for determining whether the geographic scope contained in a non-compete agreement is reasonable as the statute does in considering a reasonable duration and legitimate business interests. What constitutes a reasonable geographic scope provision can vary depending on the facts of each case and various factors. Such factors may include, but are not limited to, location of the customers, the type of business restricted, and the geographic areas of the business.

In determining what constitutes a reasonable geographic scope we highly recommend you contact our attorneys.

COMMON LAW DEFENSES TO NON-COMPETE ENFORCEMENT

Material Breach

Florida law holds that an employer's material breach of a contract is relevant in determining whether the employer would be entitled to a temporary injunction to try and enforce a non-compete agreement. In other words, if an employer materially breaches a contract between the employer and the employee prior to the employee's breach of the non-compete agreement, the employee's obligation to comply with the non-compete may be excused.

Unclean hands

Under the equitable doctrine of "unclean hands," an employer can ask a court to order an employee to act in good faith as long as the employer has acted in good faith as well. For example, if an employer has engaged in unlawful conduct such as discrimination, then the employer may be prevented from pursuing a non-compete agreement.

CHALLENGES TO A NONCOMPETE AGREEMENT

If an employee desires to get out of a non-compete agreement, he/she can challenge the non-compete agreement on various legal grounds such as:

  • A lack of justifiable business reasons for the restrictions.
  • No legitimate business interests to enforce.
  • Unreasonable restrictions on the scope of an employee's potential employment.
  • The non-compete agreement is for too long a time frame.

HOW CANTWELL & GOLDMAN, P.A. CAN HELP YOU

Our attorneys are experienced in drafting valid, enforceable non-compete agreements as well as the enforcement of those agreements. Our attorneys have represented numerous employers as well as employees in matters relating to non-compete agreements. Contact Cantwell & Goldman, P.A. today to fully understand the nature and consequences of your non-compete agreement.